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Herbalife shares reach one-year high on buyback speculation

September 17, 2013|By Stuart Pfeifer
  • Herbalife Ltd. is based in Los Angeles and also has offices in Torrance.
Herbalife Ltd. is based in Los Angeles and also has offices in Torrance. (Mark Boster / Los Angeles…)

Herbalife Ltd. shares reached a 52-week high Tuesday morning on speculation that the company may begin an aggressive share repurchase.

The Los Angeles nutritional products company has been one of the biggest names on Wall Street since December, when hedge fund manager Bill Ackman accused the company of operating a pyramid scheme and said he had bet more than $1 billion that its shares would fall.

So far, the company has fended off those allegations, with several high-profile investors  -- Carl Icahn, George Soros, William Stiritz and others -- taking massive long positions on the stock.

D.A. Davidson & Co. analyst Timothy Ramey recently suggested that Herbalife will launch a $2 billion share repurchase. Asked what influence the buyback could have on Herbalife shares, Ramey told The Times: “We have a $92 price target.”

Shares of Herbalife traded as high as $73.71 on Tuesday before fading slightly. Its stock is up more than 120% this year.

Herbalife declined to discuss speculation that it will soon begin repurchasing its stock.

"We don't comment on rumors in the marketplace," said Herbalife spokeswoman Barbara Henderson.

Ramey said in a research note that he expects accounting firm PricewaterhouseCoopers to complete its auditing of Herbalife's past financial statements this month. Herbalife hired the firm earlier this year after its prior auditor, KPMG, resigned because a senior auditor admitted to an insider-trading charge of Herbalife stock.

Once PricewaterhouseCoopers signs off on the past financials, Herbalife will issue investment-grade debt and use the proceeds to finance a “massive repurchase,” Ramey said.

On top of that, KPMG will likely pay Herbalife $500 million to $1 billion to resolve its liability in the insider trading scandal, Ramey said.

The good news comes as several Latino rights organizations call on the Federal Trade Commission to investigate Herbalife. They suggested that the company preys on Latinos by suggesting they can achieve vast wealth selling its products even though more than 80% of its distributors make little or no money.

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Twitter: @spfeifer22


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