Carl Icahn Buys 2.6 Million More Shares of Herbalife

From Zacks Research: Activist investor Carl Icahn has purchased another 306,846 shares of Herbalife Ltd. (NYSE:HLF) this week, as per Bloomberg, after adding 2.3 million shares to his portfolio last week. Shares of this nutrition-supplements company gained 0.29% on Friday, after Icahn paid $60.39 a share for the added stake on Aug 31.

Last week, Icahn acquired an additional 2.3 million Herbalife shares, after billionaire activist investor Bill Ackman reportedly stated that Icahn was looking to sell his stake in the company.

Hedge fund manager, Bill Ackman reportedly stated to CNBC early on Aug 26 that Icahn considered selling his stake in Herbalife, worth approximately $1 billion, to a consortium that included Ackman.

According to sources, Ackman said that Icahn was interested in selling off his stake and was therefore looking for buyers, in anticipation of good returns.

Icahn, however, stated that he never directly put in a sell order. In fact, he hit back harder at Ackman by buying more stake in the firm, thus signaling his loyalty toward the company.

Icahn and Ackman have been battling over Herbalife for years. Icahn’s position in Herbalife is worth more than a billion dollars, shares which he started accumulating in late 2012. Ackman, on the other hand, took a short position in the company in late 2012. He claimed that the company is running a pyramid scheme, which involves making money by way of recruiting more salespeople rather than selling products. Such models are illegal because they eventually collapse once there are no more people to recruit.

Herbalife, on its part, has been denying the charges from the very beginning. The company clarified that it operates like a multi-level marketing company, similar to Nu Skin Enterprises Inc. (NUS – Free Report) , USANA Health Sciences Inc. (USNA –Free Report) and Avon Products Inc. (AVP – Free Report).

However, Ackman’s back-to-back allegations prompted a civil investigative demand in 2014 by the U.S. Federal Trade Commission (“FTC”) related to the company’s marketing practices. Nevertheless, in mid-July, Herbalife reached a settlement with the FTC, and agreed to pay $200 million as penalty charges. The FTC had charged that Herbalife’s earnings potential claims were deceptive and its compensation structure hinged on recruiting other product distributors instead of selling capability.

Nevertheless, Herbalife has remained upbeat about its prospects. The company reported better-than-expected second-quarter 2016 results on the back of higher sales and improving volume trends. Management also raised its view for full-year 2016.

September 5, 2016


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