Activist investor Carl Icahn, who once defended the company against attacks from short sellers, reduces stake
By: Dave Rauf
“Herbalife Nutrition’s products and business opportunity are needed now more than ever, and I look forward to remaining a shareholder of the company.”
—Carl Icahn, founder, Icahn Enterprises
Billionaire investor Carl Icahn has sold the majority of his shares back to Herbalife Nutrition and has given up his five board seats at the direct selling giant.
As part of a deal announced in mid-January, Herbalife agreed to buy back roughly $600 million worth of shares from Icahn at a price of $48.05 per share. He now holds about 8 million shares, a roughly 6 percent stake in Herbalife, down from 15 percent. Icahn is no longer the company’s largest stockholder.
Analysts who track Herbalife say they were not surprised by the move. Icahn has been steadily whittling down his position in Herbalife in recent years, and his exit as the majority shareholder was expected at some point.
In a statement, Icahn says he believed in Herbalife’s products, its strategy and business model when he made his initial investment more than eight years ago—a time when the Federal Trade Commission (FTC) was investigating the company as part of a high-profile probe.
Icahn says Herbalife has moved well beyond its FTC controversy, and “the time for activism has passed.”
“When I began purchasing the shares, I believed it was undervalued for extraneous reasons that I thought made little sense. At the time, I believed the Company was in need of an activist, and that certainly turned out to be correct,” he says. “Yet, the time for activism has passed as the Company has grown, and I don’t typically invest billions of dollars in companies where our role as activist is not needed. That being said, Herbalife Nutrition’s products and business opportunity are needed now more than ever, and I look forward to remaining a shareholder of the Company.”
Icahn’s remaining stake in Herbalife is worth about $400 million.
Since 2013, Herbalife has been a part of Icahn’s portfolio. He bought into the stock months after fellow activist investor Bill Ackman took a short position in the company and labeled it a pyramid scheme.
The two billionaires publicly clashed over Herbalife multiple times, including during a memorable half-hour debate on CNBC about the company’s stock in which Icahn and Ackman traded insults.
Throughout, Ichan defended Herbalife’s marketing model, and the company denied the pyramid-scheme allegations.
Herbalife settled with the FTC in 2016, and the company’s stock price has soared since that time.
After taking a position in the company, Icahn has made more than $1 billion in profit off his shares, says Doug Lane, principal at Lane Research, a firm that tracks Herbalife and other publicly traded direct selling companies.
“The point is, he got involved as an activist taking the long side to Ackman’s short, and he turned out to be right,” Lane says, noting that Icahn covered his short position in 2018 when Herbalife bought back 10.5 million shares from him.
He adds, “By then, the stock had increased in value, and Icahn had made money in the trade. That’s the entire reason he was interested in Herbalife in the first place.”
Herbalife has launched several aggressive share repurchase programs in recent years, including an announcement in July 2020 that it will purchase up to $750 million of its stock as part of a modified Dutch auction priced between $44.75 and $50.00 per share.
A company typically buys back its shares to reduce the number of outstanding shares. That can make the fewer remaining outstanding shares become more valuable. Companies also buy back shares if they believe they are undervalued.
The latest Icahn sell-off is part of a larger share repurchase program Herbalife launched in 2018. Herbalife has bought back more than $1.5 billion worth of stock through the 2018 program—most of it from Icahn.
After the 2018 deal, Icahn still retained about 21 percent ownership in the company with 35.2 million shares. But in the past six months, he’s sold more than $1.3 billion in Herbalife shares. That includes an August 2020 deal in which the activist investor sold 14.7 million shares back to Herbalife valued at more than $700 million.
Lane, the analyst who tracks Herbalife, says it was just a matter of time before Icahn unloaded his majority position in the company.
Lane says. “In our opinion, the investment conclusion is that the Icahn overhang has been removed,” Lane says. “At this point, he’s off the board. He’s just another passive investor.”
In a statement, Herbalife CEO John Agwunobi says he is grateful for Icahn’s investments in the company. “Our decision to repurchase these shares is a testament to the strength of our business and our long-term growth prospects.”
He adds, “I am grateful to Carl for his friendship, advice, and support and deeply appreciate his unwavering faith in our company, our products, and our distributors.”
“He was certainly there when we needed him. Carl took the time to get to know us and understand the benefits of our products and our direct sales business model, and we have delivered value for him and our other shareholders. I look forward to his continued contributions as he will remain one of our largest shareholders. I am also grateful for his board representatives, who have provided invaluable guidance and insight that has contributed to our impressive growth.”
When Ichan invested in Herbalife in 2013, the company agreed to give Icahn Enterprises five board seats for as long as he retained at least 14 million shares.
All five of the Icahn-backed board members have stepped down from the board, according to a regulatory filing.
Lane says he doesn’t expect any disruption at the company as a result: “They still have the usual people overseeing day-to-day operations of the company.”
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