Activist Investor Carl Icahn Trims Herbalife Stake In $600M Deal

Herbalife Nutrition Ltd. disclosed that billionaire Carl C. Icahn has sold $600 million in common stock back to the company.

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Specifically, Herbalife (HLF) has entered into an agreement to repurchase the company’s common shares at a price of $48.05 per share, the closing price on December 31, 2020, or the last trading day prior to the purchase deal. The transaction is expected to close by January 7. Following the deal, Icahn Enterprises will hold about 8 million Herbalife common shares, or about 6% of the outstanding shares.

The purchase of the shares will be funded from Herbalife’s cash on hand and existing credit facility. The share buyback is a part of the nutrition company’s 2018 repurchase program, which takes the total to about $1.5 billion in shares.

Back in 2013, when Icahn Enterprises closed a support agreement with Herbalife as the company was under pressure from short sellers, it agreed to give the activist investor five board seats for as long as it held at least 14 million of its common shares. Following the repurchase deal, which will take Icahn’s holding below this threshold, all five directors resigned from Herbalife’s board of directors on January 3.

“When I began purchasing the shares, I believed it was undervalued for extraneous reasons that I thought made little sense,” Icahn stated. “At the time, I believed the company was in need of an activist and that certainly turned out to be correct. Yet, the time for activism has passed as the company has grown, and I don’t typically invest billions of dollars in companies where our role as activist is not needed.”

“That being said, Herbalife Nutrition’s products and business opportunity are needed now more than ever, and I look forward to remaining a shareholder of the company,” he summed up.

Shares in Herbalife have recovered after hitting a low in March and are now trading almost 1% higher than a year ago, as the company has been benefiting from the recent trend of consumer preferences for a healthy lifestyle during the coronavirus pandemic. (See Herbalife stock analysis on TipRanks)

Citigroup analyst Wendy Nicholson last month raised the stock’s price target to $66 from $63 and reiterated a Buy rating as she slightly adjusted earnings estimates to account for a better outlook for interest expense and share count. The new PT implies 37% upside potential over the coming 12 months.