Herbalife says it could be near a settlement with the FTC, and the stock is surging
Herbalife said its in an 'advanced stage' of reaching a settlement or litigation with the Federal Trade Commission.
Shares of multi-level marketer Herbalife surged to a 52-week high after the company reported better than expected earnings results and said that its nearing a settlement with the Federal Trade Commission.
“While there are a number of open issues, those discussions have progressed to an advanced stage and the range of outcomes now includes litigation or settlement. If a settlement is reached with the FTC, it would likely include injunctive and other relief as well as a monetary payment with our best estimate of a payment being $200 million,” the company said in a statement on Thursday afternoon quoted by Bloomberg News.
Herbalife's stock (HLF) was last trading up more than 12.7% at $65.76 per share.
In February, the company said in a 10-K regulatory filing that it was in talks with the FTC. The company's statement indicates that there are now two likely outcomes. In the 10-K the company said there was the possibility for "closure of these matters without any action."
The company, which sells weightloss and nutritional shakes using its MLM network, has been at the center of a hedge fund war on Wall Street for more than three years.
Hedge fund manager Bill Ackman, the founder of $12 billion Pershing Square Capital, has been crusading against Herbalife. In late December 2012, Ackman publicly declared that he was short $1 billion worth of Herbalife. He first shorted the stock in the mid-$40 range.
Ackman's thesis centers around his belief that the company is operating as a "pyramid scheme" that targets poor people, particularly from minority populations. It's his contention that regulators, specifically the FTC, will shut the company down.
A number of hedge funds, most notably Carl Icahn, disagreed with Ackman’s thesis and piled on by going long the stock.
Herbalife has always denied Ackman’s allegations.
In March 2014, the FTC opened an investigation into the company.
Ackman has said many times before that he would take this short "to the end of the earth."
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Julia La Roche is a finance reporter at Yahoo Finance.
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