Global nutrition company Herbalife has been the subject of countless headlines since activist investor Bill Ackman’s Pershing Square fund announced a $1-billion short on the company’s stock. At the close of 2012, Ackman launched a public campaign to drive down Herbalife’s stock price, attacking the company’s business model and how it presents itself to potential distributors and consumers.
The subsequent involvement of prominent hedge fund managers such as Dan Loeb, Carl Icahn and George Soros has prompted a wider conversation about what comprises legitimate sales practices, in contrast to how illegal schemes conduct business.
Our September issue of DSN offers further insight into The Difference Between Legitimate Direct Selling Companies and Illegal Pyramid Schemes and an informative point of view by MLM Legal’s Jeffrey A. Babener on Herbalife: What the Short Sellers Missed on the Way to the Press Conference.
Despite seeing shares fall 43 percent following Ackman’s initial accusations, Herbalife bounced back with record Q1 earnings in 2013. In July, the company reported record, double-digit sales growth for the second quarter, propelling Herbalife shares to a 52-week high of $66.23.
Earlier this month, Herbalife shares jumped 22 percent when Bill Stiritz—who has spent 54 years in the food industry and currently serves as CEO of Raisin Bran maker Post Holdings Inc.—disclosed a 5.2 percent stake in Herbalife. Stiritz knew little about Herbalife before viewing a televised debate between investors Icahn and Ackman earlier this year. After researching the company, including signing up as a distributor to personally investigate the products and process, Stiritz told Bloomberg he considers Herbalife a “national treasure” and plans to buy more shares in the company.
Last week, Herbalife stock climbed further to hit a new all-time high—trading up more than 3 percent at about $73 a share—amid speculation that Herbalife will soon announce a leveraged buyback of its stock. Upon receiving certified financial documents from new auditor Pricewaterhouse Coopers (PwC), Herbalife could choose to conduct a large share repurchase—a program which one analyst estimates could amount to $2 billion.
Despite Ackman’s ongoing attempts to discredit Herbalife, including petitioning the SEC and writing a cautionary 52-page letter to Herbalife auditor PwC, Herbalife has seen stock prices soar more than 66 percent since Ackman announced his short last year.