Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

(Corrected )

Herbalife Ltd. just delivered some bad news with a chaser to make it go down easier. That doesn't mean it's all better.

The seller of nutritional supplements announced on Monday that talks with a suitor seeking to take it private had ended after nine months. Perhaps not coincidentally, those discussions ended just days after Herbalife's stock took a dive following an announcement by China’s State Administration for Industry & Commerce website that it had launched a three-month campaign to police pyramid schemes.

Financial buyers are arguably the savviest potential suitors around, so the mystery acquirer's decision to bail should give investors pause -- perhaps the Chinese regulatory scrutiny should be treated as a real risk, considering Herbalife's business in China represents roughly a fifth of revenue and has been one of its few growth engines of late. 

Achilles Heel
China accounted for about a fifth of Herbalife's revenue last year
Source: Bloomberg

Still, Herbalife managed to prevent what might have been a fire sale of its shares by also announcing a tender offer for up to $600 million of its stock. By pricing the tender offer at a premium, or as high as $68 apiece, its stock soared as much as 12 percent to its highest level since July. Herbalife also pledged to make an extra payment to tendering shareholders in the event the company is bought out at a steeper price in the next two years.

Wrong Direction
It's hard to believe we are coming up on the five-year anniversary of Ackman's Herbalife short. He said on a recent conference call that Herbalife was his fund's biggest loser for the year.
Source: Bloomberg

Carl Icahn, Herbalife's largest shareholder, is still standing behind the company and won't be tendering his shares, though he agreed to keep his stake below 50 percent unless he buys the company outright. His ongoing support of Herbalife continues to sting rival activist Bill Ackman, who admitted last week that his longtime bet against the company is Pershing Square Capital Management LP's "biggest loser" of 2017. 

But Ackman's commitment to his crusade against Herbalife may eventually be rewarded. Changes to its business following its July 2016 settlement with the Federal Trade Commission are hurting its bottom line. Just earlier this month, the company lowered its earnings guidance and admitted its growth was slowing, in part because it's had to refresh some of its sales practices following its agreement with U.S. regulators.

In fact, weak sales growth and a muted backdrop for weight-management products has stunted Herbalife's projected 2017 earnings figure. At under $700 million, it's set to be the company's worst showing since 2011.  It's also far from reassuring that analysts can't rule out future earnings downgrades.

With buyout speculation quashed for now, there's little reason the stock should maintain its lofty heights.

-- Brooke Sutherland provided assistance.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(An earlier version of this story incorrectly stated that Herbalife's stock rose to its highest level since July 2016. It's the highest since July 2017.)

  1. Herbalife is currently trading at a blended forward price to earnings multiple of 12.9, which is well above its five-year historical average of 10.6. On an EV/Ebitda basis, its current level of 9.7 also exceeds its historical average of 7.3.

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Gillian Tan in New York at

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Beth Williams at