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Daniel Loeb Counters Bill Ackman by Taking 8 Percent Herbalife Stake

January 09, 2013 | About:
Holly LaFon

Holly LaFon

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“Event-driven value investor” Daniel Loeb viewed Herbalife (HLF)’s stock price drop due to Bill Ackman’s $1 billion short announcement as an opportunity to buy a lot of the company. GuruFocus Real Time Picks reports that Loeb has purchased 8.9 million shares of Herbalife, an 8.24% stake in the company, on Jan. 3, 2012. He filed a 13G with the SEC, meaning he does not have activist intentions.

Shares of Herbalife tumbled as low as 38% in December after Bill Ackman unveiled Pershing Square’s short position in the company. On Dec. 20, Ackman lambasted Herbalife in a 342-slide presentation at a Sohn Conference event in New York, calling it a “pyramid scheme” and saying that it preys on the most vulnerable, low-come segments of society. He has even set up a website dedicated to unmasking its supposed business transgressions.

"Herbalife inflates the suggested retail price of its products and overstates retail sales… recruiting worth is substantially greater than the retail profit that they generate,” Ackman said.

The doomed-to-fail company has a price target of zero, according to Ackman, whose team spent a year researching it.

Irate Herbalife CEO Michael Johnson countered Ackman’s claims on CNBC on Nov. 19, saying Ackman was attempting to manipulate the markets, and the company will discuss them further in their investor conference tomorrow.

The stock’s price has since returned to almost its pre-presentation price, with an additional 9% lift on news of Loeb’s stake, to trade for $40.34 on Wednesday. Loeb’s fund is up 21.2% through December, boosted by gains from Greek government bonds, successes with his activist position in Yahoo! (YHOO) and the resurgence of AIG (AIG).

HLF data by GuruFocus.com

In the past ten years, Herbalife has increased its revenue almost every year, and produced a profit in nine out of the ten years. It has produced free cash flow for the past ten years as well, generating a record $419 million in 2011.

The company has been aggressive about repurchasing shares in recent years. Since 2006, its shares outstanding declined from 143 million to 112 million.

Herbalife has a P/E of 10.3, P/B of 10.7 and P/S of 1.5, according to its 10-year financials.

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Rating: 4.3/5 (10 votes)

Comments

batbeer2
Batbeer2 premium member - 1 year ago
Why is the CEO not complaining about the stock "manipulation" by the longs?

If he thinks the stock is too low, he should buy-back 35% of the company.

Actions speak louder than words.
sjzhao2003
Sjzhao2003 - 1 year ago
As pointed by Chapman, the company is prohibited by law to buy back their shares during the "quiet period" surrounding important announcements.

The herbalife show is getting quite interesting.
wescileppi
Wescileppi - 1 year ago


It appears Ackman might have really set himself up. Oh wait, his JCP investment will counter this chicanery. Oops, maybe not.
batbeer2
Batbeer2 premium member - 1 year ago
>> As pointed by Chapman, the company is prohibited by law to buy back their shares during the "quiet period" surrounding important announcements.

Good point. See what they do thereafter then.
stevenramsey
Stevenramsey - 1 year ago
This is a fascinating spectacle. You can't make this stuff up! Only in real life. I'm enjoying watching and am content not to coat-tail this escapade. One foot hurdles....
traderatwork
Traderatwork - 1 year ago
Dan Loeb is trying to short squeeze HLF and he would care less if Herbalife is a pyramid scheme. Until FTC take action, Ackman will have a long 2013.

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