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Categorized | Financial

Herbalife boosted by reports of Soros stake

Posted on July 31, 2013

Herbalife Ltd. signage is displayed outside of the company's corporate headquarters in Torrance, California©Bloomberg

Herbalife shares jumped to a fresh 12-month high on Wednesday following reports that billionaire investor George Soros had taken a large stake in the nutritional supplement direct seller.

A 9 per cent rise in the share price to more than $65 extends losses already in the hundreds of millions of dollars for Pershing Square, the $13bn hedge fund run by Bill Ackman, that has called Herbalife a fraudulent pyramid scheme and placed a billion-dollar bet against the value of its shares.

    Mr Soros, one of the most successful investors of all time, is the second retired hedge fund manager to back the company. He joins Carl Icahn, a veteran agitator and bitter rival of Mr Ackman, who has taken a 16.5 per cent stake in the group, worth $1.1bn. Mr Icahn has also appointed two representatives to Herbalife’s board.

    Herbalife, which has said it is a legitimate business that has been operating for 33 years, sells products such as weight-loss shakes and vitamin pills in countries around the world through a network of self-employed salespeople it calls distributors.

    Shares in the company hit a peak of more than $72 in April 2012, days before another hedge fund manager, David Einhorn, appeared on a conference call to ask questions about the nature of Herbalife’s sales.

    In December they hit a low of less than $27 after Mr Ackman unveiled his bet against the company and urged regulators to investigate what he said was an illegal pyramid scheme designed to exploit naive new recruits rather than sell products to real end consumers.

    Mr Icahn disclosed an interest in Herbalife the following month, calling Mr Ackman a “crybaby” as the two men traded insults live on CNBC.

    The share price has steadily recovered this year, before jumping more than 9 per cent on Wednesday after the television broadcaster reported that Mr Soros had taken a large position in the company. Mr Soros did not immediately respond to requests for comment.

    It follows the release by Herbalife of second-quarter results on Monday, the first since it appointed PwC as its auditor following the resignation of KPMG because of an insider trading scandal in April.

    There have been calls from several quarters for the Federal Trade Commission to investigate Mr Ackman’s allegations against Herbalife, including consumer groups, Linda Sanchez, a Democratic US representative, and Timothy Ramey, an analyst for Davidson & Co with a “buy” rating on Herbalife. The FTC has said that it considers all correspondence from the public seriously.

    Pershing Square’s flagship fund is up 8.3 per cent so far this year, according to a client of the firm, and the losses on Herbalife come as Mr Ackman launches a new campaign of activism at Air Products, the industrial chemical company.