Herbalife Hires Bankers as Ackman Showdown Looms (Correct)
Ramey of D.A. Davidson said in a Dec. 21 note to clients that he disagreed with Ackman's overall argument that Herbalife draws the bulk of its revenue from distributors involved in the company's multi-level marketing arrangement -- a revenue mix that could fall under "pyramid scheme" definitions detailed by the Federal Trade Commission -- and feels the majority of the company's sales count as bona fide retail demand.
On a more fundamental basis, Bank of America Merrill Lynch analyst Christopher Ferrara and Linda Bolton Weiser of R. Riley & Co. argued Herbalife had the financial flexibility to launch a large stock buyback, which might drive earnings per share growth. Ferrara, for instance, highlighted in a Dec. 21 note to clients that Herbalife is authorized to repurchase $1 billion in stock, or roughly 24% of the company's shares outstanding.
Monday's disclosure by Herbalife may dampen expectations of a large buyback to cut against Ackman's Herbalife short trade. Its hiring of Moelis & Co. may also raise new questions, as investors await a direct response to Ackman's allegations.
For more on the battle between Herbalife and Ackman, see why they're getting personal .
-- Written by Antoine Gara in New York