Herbalife (HLF) Reveals Discussion with FTC; Stock Soars


The stock price of Herbalife (NYSE:HLF) surged more than 20% to $55.14 per share. In fact, the shares of the company went up as much as 27% to $58.20 per share today.

Herbalife Stock Chart

The significant increase was primarily driven by the company’s disclosure that it is engaged in discussions with the U.S. Federal Trade Commission (FTC) to settle the long-standing investigation regarding the allegations against it.

In 2014, Herbalife received a civil investigative demand from the FTC in connection with the complaints regarding its business practices.  In 2012, activist investor Bill Ackman announced a $1 billion short position on Herbalife. He accused the company of running a pyramid scheme.

The League of United Latin American Citizens (LULAC), a civil activist group, shared Ackman’s position that Herbalife is a pyramid scheme and it is making profits by using fraudulent arrangements and taking advantage of its independent distributers.

Herbalife cannot predict potential outcome of discussions with FTC

In a regulatory filing with the Securities and Exchange Commission (SEC), Herbalife disclosed that it “is currently in discussions with the FTC regarding a potential resolution of these matters.”

The company added, “The possible range of outcomes include the filing by the FTC of a contested civil complaint, further discussions leading to a settlement which could include a monetary payment and other relief or the closure of these matters without action.”

Herbalife also stated that it is cooperating with the FTC investigation. The company also stated, “At this time it is difficult to predict the timing, and the likely outcome, of these matters.”

The company has been fighting Ackman’s campaign against it since 2012.  In a previous interview with CNBC, the activist investor called Herbalife a “criminal enterprise.” He said the company “preys on principally undocumented Latino people in the United States and poor around the world. This is a conscious strategy at the most senior management of the company.”

Herbalife repeatedly denied Ackman’s accusations and expressed confidence that its business model has strong fundamentals.

Investors are optimistic that Herbalife would be able to resolve the problem without suffering further damage.

Herbalife financial results

Today, Herbalife reported net sales of $1.1 billion, an increase of 9.7% excluding currency impact and adjusted earnings of $1.19 per share for the fourth quarter ended December 31, 2015.

For the full fiscal 2015, the company generated net sales of $4.5 billion and adjusted earnings of $5.00 per share.

Herbalife Chairman and CEO Michael Johnson said, “2015 was a significant year for Herbalife, as we completed the rollout of bold and important changes to the marketing plan that will enhance the long-term and sustainable growth of our business. We successfully navigated the associated short-term challenges, believing that we were making the right changes at the right time, and despite ongoing currency and macroeconomic challenges, we finished the year returning to growth.”

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