Presidential administrations and their informal advisors come and go, but the Wall Street battle over Herbalife seems to go on forever.
On Monday, Herbalife said it had launched a $600 million stock buyback after the company recently terminated talks with “a prospective financial investor,” reportedly a private equity firm, that was seeking to take the controversial diet shake seller private. The takeover discussions were terminated on August 16.
Herbalife said it had commenced a tender offer to repurchase up to $600 million of stock at prices between $60 and $68 a share. The tender offer is not conditional on any financing arrangement, the company said. Each tendered share will also receive a contingent value right, granting the selling shareholder the right to a cash payment and participation in the upside of any going private transaction for the next two years.
At the same time, billionaire Carl Icahn, who is Herbalife’s biggest shareholder, agreed to not increase his holdings in the company to more than 50% for two years unless he has reached a deal to buy all of the company. He also agreed not to sell any shares into the tender offer.
Shares of Herbalife were up 8% in pre-market trading to $67 after closing on Friday at $61.95. Prior to the announcement, shares of Herbalife were up nearly 30% in 2017, trading above $74 at one point, but the stock recently gave up some of its 2017 gains after reports that China was cracking down on multi-level marketing practices like the ones used by Herbalife. China is a key market for the company.
The Wall Street battle over Herbalife is well into its fifth year, pitting Icahn against billionaire hedge fund manager Bill Ackman, who has called Herbalife a pyramid scheme and directed his Pershing Square hedge fund to bet against Herbalife’s stock in a big way.
The battle between Icahn and Ackman has at many times seemed to be a personal one and even though the two have publicly said they had reconciled over their acrimonious past, the personal rivalry still seems very much in play with Herbalife. The company's stock performance this year has weighed on Ackman's Pershing Square hedge fund as it attempts to rebound from disastrous recent years; Herbalife's stock repurchase and contingent value right arrangement will cause Ackman more pain in the short term.
Both Herbalife and Icahn have denied Ackman’s charges. In the U.S., last year the Federal Trade Commission forced Herbalife to pay $200 million in a settlement agreement regarding the company’s U.S. marketing practices. While regulators stopped short of calling Herbalife a pyramid scheme, they did say the company had misled consumers and forced Herbalife to change some of its key business practices in the U.S.
At the time of the FTC settlement, Herbalife stock changed hands for about $59. Ackman called the settlement a victory because the business changes being forced by the FTC would cause the alleged pyramid scheme to collapse. While that has clearly not happened, the business changes are only starting to come into effect at Herbalife.
