Shares of Herbalife Ltd (NYSE:HLF) rose as much as 4 percent on Tuesday, hitting a new high and undoubtedly making Bill Ackman frown. So why is the stock up so much? Nathan Vardi of Forbes reports that it’s probably because investors are expecting news of a major share repurchasing plan very soon.
Herbalife push sparked by D.A. Davidson?
So where did they get the notion that the controversial nutritional supplements company was planning a share buyback? It’s probably from D.A. Davidson analyst Tim Ramey, who has an interesting track record in terms of reporting on Herbalife Ltd (NYSE:HLF).
Last year was a banner year for hedge funds in general, as the industry attracted $31 billion worth of net inflows, according to data from HFM. That total included a challenging fourth quarter, in which investors pulled more than $23 billion from hedge funds. HFM reported $12 billion in inflows for the first quarter following Read More
Ramey has been very bullish on the company since about June when he did a major flip flop on the company. Three days after downgrading Herbalife, he upgraded the stock again and called it his “single best idea,” based on the company’s release of a somewhat unimpressive report.
Ramey makes a prediction about Herbalife
Since then the analyst has released report after report about Herbalife Ltd (NYSE:HLF), defending it against Ackman, whose views he repeatedly put down. This morning he said on a morning phone call with his firm’s brokers that he thinks the company will begin conducting a major leveraged buyback. He said all Herbalife is waiting on now is some certified financial documents, which it needs from its new auditor.
If you remember, earlier this year the company’s auditor KPMG resigned amidst insider trading allegations. Herbalife then retained a new auditor and was required by regulators to have a few previous years’ financial statements audited again by the new firm. According to Ramey, once Herbalife Ltd (NYSE:HLF) receives those new documents, it could make a tender offer worth up to $2 billion.
This prediction is nothing new
Since at least last month, Ramey has been speculating that Herbalife will do a $2 billion share buyback. Ackman sent a huge report to the company’s new auditors, which focused on a variety of things. Of course Ramey took issue with Ackman’s report and even found it funny.
It’s worth noting that the Ackman versus Herbalife fight, which has gone on since last December, could lead up to this share buyback the analyst keeps talking about. Ackman took a $1 billion short position, and as recently as a couple of months ago, he had not moved to cover any part of that position. Of course this might have changed by now. Shares of Herbalife Ltd (NYSE:HLF) are already up almost 130 percent so far this year, which is making Ackman’s short more and more painful by the day.
A major share buyback could really put the squeeze on Ackman and his Pershing Square Management fund. And don’t forget that the company had been planning to do a share buyback in April, but that plan had to be put on hold after the insider trading allegations surrounding KPMG.