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Herbalife's new audit, share rise deal fresh blow to Ackman

[December 16, 2013]  By Svea Herbst-Bayliss

BOSTON (Reuters) — Herbalife Ltd <HLF.N> on Monday said a new audit yielded no changes to its financial statements, sending its shares up by more than 9 percent and dealing a blow to hedge fund manager William Ackman, who is betting against the stock.

The nutrition and weight loss company said that auditor PricewaterhouseCoopers had completed a review of its financial statements for 2010, 2011, 2012 and 2013 and that it made no significant changes.

Herbalife shares surged 9.4 percent to end regular trading at $74.83, up 127 percent year to date. The stock had been trading about 3 percent higher prior to a trading halt pending announcement of the audit results.

That is bad news for Ackman's $12 billion hedge fund, Pershing Square Capital Management, which has lost a substantial sum by betting that Herbalife's stock price would fall. Ackman told Bloomberg TV on November 22 that his fund had lost between $400 million and $500 million on Herbalife, the last time he discussed the losses publicly.

Nearly a year ago Ackman surprised Wall Street with his very public claim that Herbalife is a pyramid scheme and would eventually be shut down by regulators.

Herbalife has denied Ackman's allegations and so far no regulator has officially made any statements about Herbalife's business activities.

Undeterred by mounting losses, Ackman last month said that he would pursue his bet "to the end of the earth."

A spokeswoman for the hedge fund said, "It is not the role of Herbalife's auditor to determine if the company is a pyramid scheme." That depends, she said, on whether distributors earn more from recruiting new distributors than from retail sales to consumers who are not distributors.

"The few Herbalife distributors that make money earn the vast majority of their profits from recruiting. Herbalife is a pyramid scheme that will be shut down by regulators," she added.

Ackman's campaign against Herbalife has prompted other high profile investors, including Carl Icahn and Soros Fund Management, to take the opposite side of the trade. On Monday, Icahn told CNBC that he was happy about the completed re-audit and that he thinks the company is undervalued.

Herbalife had to hire PWC as an auditor after a conflict of interest forced KPMG off the account.

(Reporting by Angela Moon and Svea Herbst-Bayliss; editing by Richard Valdmanis and Steve Orlofsky)

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