Stiritz Has No Plans to Sell Herbalife Stake Following Talks

Bill Stiritz, Herbalife Ltd.’s fifth-largest investor, said he has no plans to sell his stake in the nutrition company after changing his status to a passive holder from an active one.

Stiritz said he had previously discussed “options” with Herbalife about how to handle a two-year battle with billionaire hedge fund manager Bill Ackman, who has accused the nutrition company of running an illegal pyramid scheme. Stiritz reported that he’s no longer in active discussions with management and disclosed his change to passive investor status in a filing April 3 with the U.S. Securities and Exchange Commission.

The change caused some to speculate that Stiritz planned to quietly sell his reported 8.2 percent stake in the Los Angeles-based company. Herbalife’s shares have gained 14 percent this year to $42.91 through the end of last week, after declining 52 percent in 2014 in the midst of a yearlong U.S. Federal Trade Commission investigation into the company’s business model. The stock fell 3.7 percent to $41.33 as of 9:33 a.m. in New York on Monday.

“As I sit right now, I couldn’t be happier with my investment in Herbalife,” Stiritz said Sunday in an interview. “I am more resolved than ever in the legitimacy of the model.”

Stiritz said the filing was intended to accurately reflect his dealings with Herbalife, which he expects won’t be shut down by regulators as predicted by Ackman and his hedge fund, Pershing Square Capital Management. Stiritz said he doesn’t plan to start selling his stake of almost 7.6 million shares as had been speculated.

Small Fine?

“People that are long in the stock are looking at the impact of the FTC case closure,” he said. “Herbalife will likely get little if any fine.”

Herbalife relies on an outside network of distributors to sell its weight-loss shakes, supplements and other nutrition products -- an approach known as multilevel marketing. Ackman has accused the company of misleading its distributors, misrepresenting sales and selling a commodity product at inflated prices. The FTC began probing those allegations in March 2014. Federal investigators also have been delving into whether Ackman’s actions represent an attempt to manipulate the stock.

Law Enforcement

CNBC reported yesterday that U.S. federal law enforcement agencies have contacted several Herbalife members for information about their business practices. Alan Hoffman, an Herbalife spokesman, confirmed that the communication took place, though he said it was both to find information about Herbalife and possible stock manipulation.

“We are cooperating with these requests for information, remain confident in the integrity of our business practices and are hopeful Ackman’s long-term campaign of distortion will be found to be illegal,” he said.

Ackman declined to comment.

Stiritz said he expects Herbalife’s stock and sales to rebound once the FTC investigation ends.

“This guy Ackman is a formidable competitor, you’ve got to give him credit for that,” Stiritz said. “Whether it’s legitimate, history will tell.”

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