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Carl Icahn buys more Herbalife shares, stock jumps

Julia La Roche

Activist investor Carl C. Icahn has continued to buy more Herbalife shares, adding yet another blow to hedge fund manager and long-time rival Bill Ackman’s short position.

According to a new filing, Icahn snapped up 372,342 additional shares. The 81-year-old billionaire now owns 22,872,342 shares, or 24.57% of the shares outstanding, a position valued at nearly $1.2 billion. Icahn’s average purchase price for the stake amounts to $962.01 million, the filing notes.

Shares of Herbalife (HLF) were last trading up more than 3% in the pre-market at $53.95. The stock is up 8.5% since January.

For more than four years now, Bill Ackman, the CEO of $11 billion hedge fund Pershing Square Capital, has been crusading against Herbalife. In late December 2012, he publicly declared that he was short $1 billion worth of Herbalife and that the stock would go to $0. His thesis centered around his belief that the company is operating as a “pyramid scheme” that targets poor people, particularly from minority populations. He said that regulators, specifically the FTC, would shut the company down.

Shortly after Ackman revealed his short position, Icahn and other fund managers piled on by going long the stock. Icahn, a long-time rival of Ackman’s, even said that the Pershing Square CEO would be the victim of the “mother of all short squeezes.” Ackman shorted the stock in the mid-$40s.

Last July, Herbalife agreed to pay a $200 million settlement with the FTC and “fundamentally restructure” its business. The FTC alleged in its complaint that most distributors make little to no money and a substantial percentage lose money. The “small minority” of distributors who receive “substantial income” do so through recruiting participants, not actual retail sales. The complaint said the company does “not offer a viable retail-based business opportunity.”

Soon after that announcement came out, Icahn put out a statement that the board has decided to increase his ownership limit from 25% to 34.99%.

On an investor call shortly after the FTC announcement, Ackman called the facts in the complaint against Herbalife “sufficiently damning.” He thinks the company is “massively overvalued” and that it’s a “fraudulent business” that “will not survive.”

This Friday, “Betting On Zero,” a documentary directed by Ted Bruan that chronicles Ackman’s short bet, will debut in theaters.

Julia La Roche is a finance reporter at Yahoo Finance.

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