The hedge fund billionaire William Ackman, who has said he will go to the end of the Earth to destroy Herbalife, saw some success in January as shares of the diet shake seller fell to start the year on news that a U.S. senator together with regulators from Canada to China have taken an interest in the company's business practices. But to kick off February,
Herbalife announced on Monday that its board of directors had increased its share repurchase program to $1.5 billion while launching a $1 billion convertible note offering to help fund its enhanced stock buyback, which the company expects to start right away. The availability under the company’s previous buyback authorization had been $653 million.
For months, Herbalife’s share repurchase strategy has been the subject of speculation and acrimony. The company had planned to launch an enhanced share buyback effort in the first half of 2013, but the initial effort was derailed after its auditor, KPMG, resigned and pulled three years of audited financials because the auditor’s partner in charge of the Herbalife account had engaged in insider-trading. The company hired
In the summer of 2013, Ackman filed a complaint with the Securities & Exchange Commission about George Soros’ Soros Fund Management, reportedly out of concern about attempts to orchestrate a short squeeze that revolved around an anticipated leveraged Herbalife share repurchase. Not long after, Ackman restructured his Pershing Square hedge fund’s Herbalife short position to protect the hedge fund from an aggressive share repurchase. At the time, Ackman, who says Herbalife is a pyramid scheme, tried to reassure his investors by questioning in a letter to them whether “a bank would be willing to take on the potential underwriter liability associated with a debt issue for Herbalife.” Said Ackman to his investors: “If the Company were later deemed to be a pyramid scheme, an underwriter could find itself liable for the face amount of the entire debt issue, as recoveries to creditors of a pyramid scheme are likely to be de minimis.”
Now, a few months later, Bank of America, Merrill Lynch, Credit Suisse, HSBC and Morgan Stanley are participating in an Herbalife debt offering designed to finance an Herbalife share repurchase. At the same time, Herbalife increased its fourth-quarter outlook, saying net sales for the last quarter of 2013 probably rose by 19.8% and that fourth quarter adjusted earnings per share will be in the $1.26 to $1.30 range. Shares of Herbalife were trading 4% higher in pre-market trading on Monday.
