The board’s audit committee engaged PricewaterhouseCoopers today, Cayman Islands-based Herbalife said in a filing with the U.S. Securities and Exchange Commission. The firm will audit Herbalife’s financial statements for the current year and re-audit statements for 2010 through 2012.
The hiring may help the maker of weight-loss shakes, meal-replacement bars and cosmetics fight hedge fund manager Bill Ackman’s accusations that it is a pyramid scheme. The company, which generates sales through what’s known as multi-level marketing, has repeatedly denied the assertions, saying it is retail-oriented and sells products with unique ingredients.
“PwC has significant relevant experience doing the books of Nu Skin, USANA Health Sciences, Tupperware and Avon Products,” Tim Ramey, an analyst with D.A. Davidson & Co. in Lake Oswego, Oregon, said today in an e-mail, referring to other multi-level marketing companies. “PwC clearly understands the MLM model, and Herbalife will be better-served by PwC given their depth of experience.”
Herbalife gained 3.8 percent to $51.10 at 1:19 p.m. in New York after being halted before the announcement. The shares had gained 49 percent this year through yesterday, compared with a 17 percent increase for the Standard & Poor’s 500 Index.
Work to complete the past years’ audits will begin immediately, Herbalife said.
“This would be the ultimate and hopefully final vetting, putting nails in the ‘pyramid scheme’ charges,” said Ramey, who recommends buying the shares.
PricewaterhouseCoopers is “well-positioned to perform an objective and quality audit for a company of Herbalife’s global reach and scale,” Caroline Nolan, a spokeswoman for the firm, said in an e-mailed statement.
Ackman, who disclosed in December that his New York-based Pershing Square Capital Management LP had sold short more than 20 million Herbalife shares, declined to comment.
Yesterday, Herbalife rose the most in more than four months, signaling that hedge fund manager Carl Icahn’s prediction that Ackman would become the victim of the “mother of all short squeezes” may be coming true. The shares advanced 11 percent to $49.21 for the biggest increase since Jan. 3.
Icahn is among hedge fund managers who have taken a rival position to Ackman, saying his short thesis is wrong.
“The virtuous cycle of a rising stock price and dropping hurdles is just killing Ackman’s Street cred,” Robert Chapman, founder of hedge fund Chapman Capital LLC, who also holds Herbalife, said today in an e-mail. “It seems real-time cash flow that already has been earned matters a lot more than prospective and highly speculative regulatory shutdowns that may never occur.”
Herbalife said April 9 that KPMG notified the company that its independence had been impaired, giving the firm no option other than to withdraw its audit reports for 2010, 2011 and 2012. The company said KPMG’s reports for those years fairly present its financial condition and results of operations.
KPMG fired Scott London, the head of its Los Angeles audit practice, who was later charged by federal prosecutors with insider trading related to tips passed to a friend about Herbalife and Skechers USA Inc., a footwear maker based in Manhattan Beach, California.
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