Herbalife was no stranger to controversy Friday as the company trumpeted increased investment in the firm by a billionaire backer just as Herbalife’s biggest detractor predicted the company’s end is near.
Billionaire investor Carl Icahn has purchased additional shares of Herbalife Ltd., the Los Angeles-based nutritional-products company announced Friday, apparently attempting to show the firm has a rosy future with the confidence of Icahn.
Icahn — Herbalife’s biggest shareholder and longtime defender — bought another 2.3 million shares, bringing his stake to more than 19.3 million shares, or 20.8 percent of the company, according to Herbalife.
“We appreciate the support of all of our investors and are particularly grateful to Carl Icahn and the conviction he shares, and continues to show in our business, as demonstrated by today’s significant increase in his stake in the company,” said Michael O. Johnson, Herbalife’s chairman and CEO.
Last month, Herbalife agreed to pay $200 million and change its business practices to settle federal regulators’ claims that the company deceived customers into believing they could get rich by selling diet, protein supplements and personal care products.
The U.S. Federal Trade Commission closed its investigation after finding that the company misled people into becoming distributors or members by using videos and brochures showing mansions, luxury cars and boats, and telling participants they could expect to quit their jobs, earn thousands of dollars a month, make a career-level income, or even get rich.
However, the “overwhelming majority” of distributors “earn little or no money,” according to the government.
The FTC probe was partly sparked by hedge fund manager Bill Ackman’s repeated assertions that the company is a global pyramid scheme.
In a conference call with investors last month, Ackman said that in light of the settlement, he plans to push foreign regulators to investigate the company’s practices.
In fact, Ackman said this week he had been approached to buy shares in the nutritional supplements maker from Icahn.
Ackman, who has bet more than $1 billion against Herbalife, said on CNBC that Icahn’s planned stake sale would accelerate the company’s downfall.
“This is a confidence game. Carl is what creates the confidence in the company. With Carl exiting, I think the thing is over, and over quickly. The sooner he sells the better,” Ackman said. “I think he knows that this thing is toast.”
Herbalife’s shares slumped 7 percent in early trading Friday. Icahn and Ackman have opposing bets on Los Angeles-based Herbalife.
Ackman for years has accused Herbalife of running a pyramid scheme and bet that the stock would fall to zero. The duo even became embroiled in a public war of words, with Icahn famously calling Ackman a “liar” and a “crybaby” in a CNBC interview in 2013.
They have since made up.
While Ackman has lost money on his short bet over the years, Icahn has made money but his gains are now at risk of shrinking as the stock has fallen in the last few days.
Investment bank Jefferies Group has been trying to find buyers for Icahn’s 18.3 percent stake for about a month, the Wall Street Journal reported on Friday.
Sources told Reuters on Thursday that Icahn was considering structuring a sale of Herbalife shares. Ackman’s Pershing Square declined to comment.
Jefferies and Herbalife were not immediately available for comment. Icahn was not immediately available for comment, aside from the company’s prepared statement about Icahn share purchase.
Following the settlement with regulators in July, Herbalife said its board had cleared the way for Icahn to boost his stake in the company to as much as 35 percent.
Since then, the company’s shares have risen 4.3 percent.
— Reuters