Well-known investor Loeb buys stake in Herbalife
NEW YORK (AP) — Herbalife shares ricocheted Wednesday after a well-known investor disclosed an 8.2 percent stake in the company.
News of hedge fund manager Dan Loeb's investment comes two weeks after another prominent investor attacked Herbalife's business model, prompting the company to arrange a meeting with analysts and investors to defend itself. That meeting is scheduled for Thursday.
The Securities and Exchange Commission, meanwhile, has opened an inquiry into the company, according to a report by The Wall Street Journal, citing an unnamed person close to the investigation. SEC spokesman John Nester in Washington declined to comment.
THE SPARK: Loeb's Third Point LLC purchased 8.9 million shares in the company, which signs up independent distributors to sell supplements and weight loss products.
THE BIG PICTURE: Herbalife's shares have churned over the past year as prominent investors air their opinions on its business.
Third Point's stake, which suggests support for Herbalife, was disclosed in a regulatory filing Wednesday. It follows an attack from Pershing Square Capital Management's William Ackman, another well-known hedge fund manager. He alleged last month that Herbalife was a pyramid scheme and said he was shorting its stock. Short-sellers make money when the shares they're betting against decline.
Herbalife Ltd. says the pyramid scheme claim is "bogus" and suggested that Ackman was trying to illegally manipulate its stock price to make money. Another prominent investor, Greenlight Capital's David Einhorn, had raised concerns about Herbalife's business in May.
SHARE ACTION: Trading of the stock was briefly halted Wednesday morning following a 9 percent spike on news of Loeb's investment. The shares were choppy in heavy volume after trading resumed, closing up $1.60, or 4.2 percent, at $39.95.
The stock hit a low of $24.24 in late December as a result of Ackman's allegations, their weakest level since July 2010. Shares have lost close to half their value since the end of April.