Herbalife Surges After Announcing $600MM Stock Buyback, Failed LBO Transaction

Tyler Durden's picture

One week after Herbalife stock tumbled following concerns of yet another Chinese crackdown on multi-level marketing scheme, Carl Icahn has struck again, squeezing his nemesis Bill Ackman who continues to be short the name, after Herbalife announced on Monday morning that while the company had tried and failed to pursue an LBO, it has instead entered into a pact with Carl Icahn and unveiled a "self-tender" offer according to which it would pursue a whopping $600 million buyback, equivalent to about 10% of its market cap, purchasing shares at a price between $60 and $68, effectively assuring that the company's stock price would trade in this narrow range, absent a dramatic adverse development.

Some details on the failed "go private" transaction:

The Company was recently in discussions with a prospective financial investor regarding a potential transaction that could have led to the Company being taken private. While these conversations were formally terminated on August 16, 2017, because these discussions contemplated the possibility of the Company being taken private, the Board of Directors decided to provide tendering shareholders with some protection in the event the Company is taken private within two years resulting in remaining shareholders possibly receiving a higher price than paid in the self-tender.

That... or just a way for the company to cash out its biggest shareholders - if not Carl Icahn - while loading up on even more unrepayable debt.

Commenting on today's surprise announcement, CFO John DeSimone said that "our Board and management team are committed to enhancing shareholder value and we believe today's action is just one more step in meeting this goal. We have already acquired during 2017 approximately $299 million of our shares on the open market under our current $1.5 billion share repurchase plan, and we believe this tender offer provides us an efficient way to buy back additional shares at an attractive price."

Having plunged one week ago, the stock has rebounded sharply on today's news, wiping away all of last week's losses.

Considering Herbalife's precarious standing in China, and elsewhere, and its recently disappointing operating results, the question becomes whether this is just a way for some prominent shareholders to quiet exit their Herbalife.  Or maybe not: as the release adds, "Demonstrating their commitment and belief in the long-term success of Herbalife, members of the Board of Directors, Herbalife executive officers and Carl Icahn, the Company's largest shareholder, have all advised that they do not intend to tender shares into this tender offer."

So it appears that the long-running feud between Ackman and Icahn will continue for at least a few more quarters...

Here is the full press release from Herbalife:

Herbalife Announces Self-Tender Offer Seeking to Purchase up to $600 Million of Its Outstanding Common Shares

 

Herbalife Ltd. (NYSE: HLF) ("Herbalife" or "the Company") announced today it has commenced a "modified Dutch auction" self-tender offer to purchase for cash up to an aggregate of $600 million of shares of its common stock at a per share price not less than $60.00 nor greater than $68.00. For each share tendered, shareholders will also receive a non-transferable contractual contingent value right ("CVR") allowing participants in the tender offer to receive a contingent cash payment should Herbalife be acquired in a going-private transaction within two years of today's commencement of the tender offer. 

 

The closing price of Herbalife's common shares on the New York Stock Exchange on August 18, 2017, the last full trading day before the commencement of the tender offer, was $61.95 per share. The tender offer is scheduled to expire at 5:00 P.M., New York City time, on September 19, 2017, unless the offer is extended.

 

The Herbalife Board of Directors has determined the tender offer, which includes a combination of a cash payment and a CVR for each share, is an appropriate way to return capital to shareholders that seek liquidity under current market conditions while, at the same time, providing such tendering shareholders potential additional value in the event Herbalife is taken private within two years.

 

Specifically, the Company was recently in discussions with a prospective financial investor regarding a potential transaction that could have led to the Company being taken private. While these conversations were formally terminated on August 16, 2017, because these discussions contemplated the possibility of the Company being taken private, the Board of Directors decided to provide tendering shareholders with some protection in the event the Company is taken private within two years resulting in remaining shareholders possibly receiving a higher price than paid in the self-tender.

 

"Our Board and management team are committed to enhancing shareholder value and we believe today's action is just one more step in meeting this goal," said John DeSimone, Chief Financial Officer. "We have already acquired during 2017 approximately $299 million of our shares on the open market under our current $1.5 billion share repurchase plan, and we believe this tender offer provides us an efficient way to buy back additional shares at an attractive price."

 

In connection with the tender offer, Carl Icahn and his controlled affiliates that own Herbalife shares (the "Icahn Entities") and Herbalife entered into an agreement with the Icahn Entities on August 21, 2017 pursuant to which the Icahn Entities agreed, among other things and for the two years following commencement of the tender offer, to not increase their aggregate beneficial ownership above 50% of Herbalife's outstanding common shares unless they have agreed to acquire 100% of its outstanding common shares.

 

Demonstrating their commitment and belief in the long-term success of Herbalife, members of the Board of Directors, Herbalife executive officers and Carl Icahn, the Company's largest shareholder, have all advised that they do not intend to tender shares into this tender offer.

 

The full terms and conditions of the tender offer are discussed in the Offer to Purchase, dated August 21, 2017 ("Offer to Purchase"), and the associated Letter of Transmittal and other materials relating to the tender offer that Herbalife is filing today with the Securities and Exchange Commission ("SEC").

The tender offer is not contingent upon obtaining any financing. However, the tender offer is subject to a number of other terms and conditions, which are described in detail in the Offer to Purchase.

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shizzledizzle's picture

Nothing like a good pyramid scheme.

Looney's picture

 

Carl Icahn cockblocked Herbalife’s Lesbian Buyout (LBO)? Hmm…   ;-)

Looney

HenryKissingerBilderberg's picture

Herbalife is not system relevant, hence the pyramid can be shut down ANYTIME (((wallstreet))) wants

in_xanadu_did_kubla_khan's picture

Right? How is Herbalife even relevant still? There is a pretty decent documentary out there about them...I'm surprised it hasn't finished them off, as it does a very good job of exposing them as a pyramid scheme.

Buck Johnson's picture

I think I know why Carl Icahn is so set to keep this company up and going even though more and more people know this is a MLM company that will implode.  He has the most shares and I think they are worth 1.5 billion dollars.  It's in his holding company mutual fund and I think if this company takes a dive he's out that money and it hits his 19 billion dollar portfolio on that hedgefund.  Then others will run or divest from that fund.

 

wholy1's picture

The "Fraud Preserve" - the PRIVATELY-held [NOT]Federal[NO]Reserve, a private "preserve" within which the populace of unwitting debt-slaves are the "GAME" - continues its "debt-credit" fiat currency adulteration of the increasingly financialized/UNproductive "economy" by a whopping one-fell-swoop $600M?

silverer's picture

A successful scam-type save such as that deserves a big increase in stock price. Just showing off the skill of one of the many CEO's who can make stocks go up without earnings. BUY!

H H Henry P P P Paulson's picture

Idiot Carl Icahn doing this just for spite at this point.  He knows how ludicrous such a transaction is for this cult business and will eventually pull out of this deal, and that is when Ackman will be emancipated.  

booboo's picture

Icahn buying with OPM and Ackman shorting with OPM, its good to be Tribal and doing "God work"

Grumpy_nl's picture

Just ask around, nobody is using Herbalife, its a dead product.  So where does this market value come from?? From the lying through their teeth people.

adr's picture

When you have a corporate headquarter complex larger than Toyota and Honda combined, you gotta lie about what you make. 

totenkopf88's picture

It's a front for bringing in drugs from their "factories" in Mexico

Drop-Hammer's picture

WTF is Herbalife?

Zone1's picture

Nothing says scalping the sheeple than a CVR. It sets up the purchaser to just run out the clock until it is cancelled. Sanofi is doing the same with the Genzyme CVR's, which are just litigation binary call options at this point.

bamboojay's picture

I don't know a single person that has ever bought this stuff or even seen a bottle of it.