Michael Johnson, chairman and CEO of Herbalife Ltd. (NYSE:HLF) increased his stake in the company by engaging in a “net exercise transaction involving 750,000 stock options that were granted to him in December 2004 and due to expire in December this year.”
According to the company, Johnson decided to hold all the shares issued on the exercise of the option to show his “complete confidence in the continued and future success of the company.”
Nothing prevents Johnson from selling his shares
Julian Cacchioli, the spokesperson of Herbalife Ltd. (NYSE:HLF) said Johnson is free to sell his shares in the company.
“There was nothing preventing him from selling the shares he received. The fact that he chose not to, reflects his complete confidence in the direction of the company,” said Cacchioli
Johnson currently owns approximately 1.4 million shares of Herbalife Ltd. (NYSE:HLF) worth around $61.4 million. The stock is trading around $44.04 per share, up 5% at the time of this writing at 11:28 A.M. in New York.
Bill Ackman’s reaction
Bill Ackman, the hedge fund manager of Pershing Square Capital Management believed that Johnson’s only reason to retain those shares was because he had “no choice but to hold them in light of the ongoing multiple federal and state investigations” on Herbalife Ltd. (NYSE:HLF).
According to Ackman, Johnson sold more than $150 million of his shares in Herbalife Ltd. (NYSE:HLF) including $15 million in May this year. As noted earlier…
— ValueWalk (@valuewalk) November 26, 2014
the activist investor said in a statement sent to ValueWalk:
“Michael Johnson has sold more than $150 million of stock in Herbalife including $15 million in May of this year. In fact, this year he has sold far more than he’s “purchased” and is selling more than he’s keeping in this transaction. At no cost to him, he is exercising 750,000 options that expire next month and selling 457,546 shares back to the company to pay the exercise price and taxes, while retaining only 292,454 shares. We believe the only reason Mr. Johnson is retaining those shares is that he has no choice but to hold them in light of the ongoing multiple Federal and State investigations of the company.”
Ackman alleged that Herbalife Ltd. (NYSE:HLF) is a pyramid scheme. The activist investor shorted the company’s stock as he believed that its value would eventually decline to zero.
Earlier this month, Ackman requested a meeting with Pamela Jones Harbour, the new compliance chied of Herbalife Ltd. (NYSE:HLF). Harbour was a former commissioner of the Federal Trade Commission (FTC). She previously stated that her immediate focus is to implement “proactive compliance” within the company.
Herbalife among the most shorted stocks
According to the Goldman Sach’s Hedge Fund Trend Monitor, Herbalife Ltd. (NYSE:HLF) is among most shorted stocks in the third quarter. The report indicated that 33% of shares of the company were shorted, up from 25% in the second quarter.