Matt Levine, Columnist

Herbalife Sells Bonds Today to Buy Stock in 2019

At the end there's some speculation about Ackman etc., but mostly this is just some pretty high-grade convertible dorkery, be warned.

February 3, 2014 at 6:08 PM UTC

By Matt Levine

Matt Levine is a Bloomberg Opinion columnist. A former investment banker at Goldman Sachs, he was a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz; a clerk for the U.S. Court of Appeals for the 3rd Circuit; and an editor of Dealbreaker.

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I'm a dork so my reaction to the news that Herbalife is doing a billion-dollar convertible bond offering to fund its stock buyback was, "hmm, how do you borrow Herbalife stock?" Because some things to think about convertibles are:

But then I read Herbalife's press release and it turns out that there's a good answer to that question, which is that you don't have to borrow the stock and sell it short at all. You can just enter into a contract to sell the stock to Herbalife in five years, which comes to roughly the same thing -- you're short the stock through that contract, rather than in the traditional way. So you don't have to worry about borrow costs, and Herbalife can have its convertible. Also it can buy back a lot of stock, which was really its goal.