Bill Stiritz, the fourth-largest shareholder in Herbalife (HLF:US) Ltd., said he’s willing to take part in a leveraged buyout of the company that would reward shareholders and help it fend off pyramid-scheme allegations.
Taking the nutrition company private was an option billionaire investor Carl Icahn said he would discuss with Herbalife’s management when he took a stake in the company earlier this year. Stiritz, who holds 5.3 percent of Herbalife, declined to say in an interview whether he’s in talks with Icahn, whose 17 percent stake makes him its largest investor.
“The situation is pregnant for a recap or leveraged buyout of Herbalife, and I would be willing to participate,” Stiritz, who’s also chief executive officer of cereal maker Post Holdings Inc. (POST:US), said in the telephone interview.
The shares increased 3.1 percent to $64.64 at the close in New York.
A leveraged buyout would reduce public scrutiny for Cayman Islands-based Herbalife while the company defends itself against billionaire hedge fund manager Bill Ackman, who for a year has accused it of operating an illegal pyramid scheme. Ackman has reduced his equity short position in the company while maintaining his bet through options. He continues to try to convince regulators to shut Herbalife down.
“The company under normal conditions would be worth double what it’s selling for today,” Stiritz said.
Barb Henderson, a spokeswoman for Herbalife, declined to comment on Stiritz’s remarks. A representative of Icahn declined to comment. Michael Vachon, a spokesman for New York-based Soros Fund Management LLC, which owns 5 percent of Herbalife, declined to comment.
Herbalife President Des Walsh said on Feb. 27 that the company would “certainly” consider going private in a buyout “in the right circumstance.” In leveraged buyouts, purchasers typically use a company’s cash flow (HLF:US) and assets, as well as their own, as collateral for loans to take a controlling interest.
The company also said last month it would re-evaluate its share buyback plans when PricewaterhouseCoopers LP finishes new audits of the company’s statements for 2010 through 2012.
Herbalife, which makes vitamins, skin creams and meal-replacement shakes and operates in more than 80 countries, hired PricewaterhouseCoopers in May after KPMG LLP resigned as its accounting firm because of alleged insider trading by an auditor. In August, Ackman sent a 52-page letter urging PricewaterhouseCoopers to pay attention to “serious accounting and disclosure issues.”
Stiritz, 79, researched Herbalife and began buying its shares with about $250 million of his own money after seeing Icahn defend the company.
Ackman, whose Pershing Square Capital Management LP initially sold short at least 20 million Herbalife shares, has accused it of swindling unsophisticated consumers with false get-rich promises using overpriced products that hide a pyramid scheme. He has urged U.S. regulators, elected officials and community activists to help shut it down.
Operators of pyramid schemes typically seek to make money by recruiting new members who pay fees to existing members rather than relying on just the sale of goods and services. The Federal Trade Commission has said modern pyramid schemes can use products to hide their true intent.
Herbalife has repeatedly denied Ackman’s claims. The shares have risen 96 percent this year and increased 52 percent since Dec. 18, the day before Ackman disclosed his short.
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