Ahead of the Bell: Herbalife
NEW YORK (AP) — The battle between Herbalife and hedge fund manager William Ackman over the company's business practices is likely to continue for a while, with ongoing stock volatility, an analyst said Friday.
On Thursday Herbalife Ltd., which uses a network of distributors to sell its offers nutrition and weight loss products, fought back against Ackman's claims that the business amounts to a pyramid scheme. A series of Herbalife's executives attempted to refute Ackman's allegations during an analyst and investor meeting, laying out everything from how the business operates to who its customers are.
But Ackman didn't back down, saying in a statement that Herbalife "distorted, mischaracterized, and outright ignored large portions" of Pershing Square Capital Management's December presentation. Ackman, of Pershing Square Capital Management, said that his firm would respond to every issue Herbalife raised during its meeting, but did not disclose when its next presentation would be.
"We think it will be a long time before any semblance of a resolution," John San Marco of Janney Capital Markets said in a client note.
San Marco said Herbalife's limited control over its distributors is one issue weighing on the stock. The analyst said that his view of distributor meetings has been mostly positive, but admitted that the distributors that are problematic — such as recruitment-driven individual distributors — are probably not operating in plain sight.
San Marco said that the company's opponents, the constant public scrutiny and resultant stock volatility can probably only be quelled if Herbalife makes some adjustments to its business model — like making its return policy even more liberal — or a regulator such as the Federal Trade Commission or the Securities and Exchange Commission steps up to start a formal investigation.
The Wall Street Journal reported on Wednesday that the SEC has launched an inquiry into Herbalife. The newspaper cited a person close to the inquiry who it did not identify. Representatives for the SEC and Herbalife both declined to comment.
The SEC conducts inquiries privately and reviews findings before determining whether to take any enforcement actions or not.
Shares of Herbalife rose 16 cents to $39.40 in premarket trading Friday. The stock hit a low of $24.24 in late December as a result of Ackman's allegations, their lowest point since July 2010. Shares have lost close to half their value since the end of April.