Shares of Herbalife (HLF) are in the spotlight after Carl Icahn reported a 13 percent stake in Herbalife and said he would seek talks on strategic alternatives with the nutritional supplements company, which may include taking it private. Icahn paid roughly $214 million to acquire his stake in the company, according to a regulatory filing.
Herbalife shares surged Thursday in after-hours trading on news of Icahn's stake, jumping more than 23% to over $47 after closing the day at $38.27.
Today's disclosure comes almost two months after the rival hedge-fund manager Bill Ackman said he had sold short 20 million shares of Herbalife and alleged it was a pyramid scheme. Icahn followed by saying last month that Ackman acted inappropriately when publicly announcing his bet against Herbalife, reviving a decade-old feud with the founder of Pershing Square Capital Management.
Ackman and Icahn, who have a history of animosity, hurled insults at one another during a dual appearance on CNBC last month to discuss Ackman's Herbalife trade. Icahn branded Ackman a "liar," a "major loser" and a "cry baby;" Ackman called Icahn a "bully" who "takes advantage of people."
Herbalife is a multi-level marketing company in which salespeople make money by selling Herbalife products and by taking cuts from sales by new sellers they recruit. Ackman has called Herbalife an inherently fraudulent company. He claims there is no demand for its products by true retail consumers at the suggested retail price, and that distributors make money simply by recruiting others.
Herbalife executives and consultants hit back, arguing that all of Herbalife's payments to distributors are tied to product sales and the company's accounting practices are legal.
The filing said Icahn and his investment funds have conducted a significant analysis of Herbalife:
It has a legitimate business model, with favorable long-term opportunities for growth.
It added that Icahn plans to discuss strategies to enhance shareholder value with Herbalife management, including a transaction to take the company private.
Icahn's move follows that of another celebrity hedge fund manager Dan Loeb of Third Point, who revealed he had acquired an 8% stake in Herbalife last month and praised the company's management.
Phillipe Laffont, who founded Coatue Management after working for Robertson's Tiger Management, owned 850,000 shares at the end of December, according to a filing made with the Securities and Exchange Commission on Thursday.
Similarly Patrick McCormack, another so-called Tiger Cub, reported that his Tiger Consumer Management nearly doubled its exposure to 2.3 million shares at the end of December. In the third quarter, it owned 1.4 million shares, which ranked it among Herbalife's 20 largest investors. Geode Capital, which was started by Fidelity, upped its holding in Herbalife slightly.
Loeb's regulatory filing for the fourth quarter showed that he owned roughly 3 million shares of Herbalife at the end of December, signaling that he kept buying the stock in early January before announcing that he owned 8.9 million shares. By January 3, Loeb was Herbalife's second-biggest investor after Fidelity Management & Research.
Some of the newcomers may have been tempted to enter the fray precisely because Ackman helped drive the price down dramatically in December, when he said he was shorting the company.
Ackman had said that he compares Herbalife to his previous short crusade against MBIA (MBI), which paid off in a huge way when the bond insurer cratered during the financial crisis. The question now is how much patience Ackman's investors will have if the Herbalife short trade keeps moving against him.