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Who’s Left Holding Herbalife?
As the company admits to criminal conduct, Renaissance, BlackRock, Fidelity, State Street remain top holders.
Herbalife is no longer the battleground stock it was when hedge fund manager Bill Ackman leveled his famous attack on the company, calling it a pyramid scheme in 2012. But a number of big institutions and hedge funds appeared to still own the stock as of Friday, when the U.S. Department of Justice filed — and settled — criminal charges against the multilevel marketing company.
Herbalife has admitted to the criminal charges, Acting U.S. Attorney Audrey Strauss said in a statement.
In addition to Carl Icahn — who became Herbalife’s biggest investor and Ackman’s nemesis during the storied battle — Renaissance Technologies, Vanguard, BlackRock, Fidelity, and State Street are some of the most well-known institutions among Herbalife’s top investors, according to recently filed 13F forms disclosing their U.S. public equity holdings as of June 30.
At the same time, some savvy players, including Icahn, have been selling down their stakes in the controversial MLM company.
On Aug. 12, several days ahead of the announcement of criminal charges, Icahn sold 41 percent of his stake worth more than $700 million into a tender offer by Herbalife. It is the second time in recent years that he has sold back a big chunk of the shares to the company via a tender offer.
Ackman’s billion dollar short against Herbalife, which he finally covered at a massive loss in 2018, had led Icahn to buy up about a quarter of the company’s shares and take five seats on its 13-person board.
Icahn remains the largest shareholder in Herbalife, and it is his fifth-largest position, still valued at close to $1 billion.
As of June 30 securities filings, Renaissance was the third largest holder of Herbalife shares. Other big hedge fund investors included Deccan Value Investors and Route One Investment Co. Deccan sold down 41 percent of its stake during the quarter, while Route One increased its position by 59 percent to make the company one of its top holdings, accounting for 7 percent of its publicly traded U.S long equities portfolio.
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Aside from Icahn, Herbalife’s biggest cheerleader over the years has been Australian hedge fund manager John Hempton of Bronte Capital, which is the company’s ninth largest shareholder. Bronte sold more than 9 percent of its stake during the quarter, but Herbalife remains the biggest single stock holding in its U.S. publicly traded long equities portfolio.
“The company is growing at an unprecedented rate in the U.S. and this is a distraction from the reforms that have accelerated company growth,” Hempton told II in an email, referring to the criminal settlement.
D.E. Shaw, which took a more than 5 percent stake in 2018, is now almost entirely out. It sold 95 percent of its remaining shares during the quarter.
On Friday, federal prosecutors in Manhattan unsealed the criminal charges against Herbalife, saying the Department of Justice had also reached a deferred prosecution agreement with the company, which will pay $123 million to resolve the case.
“The charges arise out of a decade-long scheme by Herbalife to falsify books and records and provide corrupt payments and benefits to Chinese government officials for the purpose of obtaining, retaining, and increasing Herbalife’s business in China,” the U.S. Attorney’s Office for the Southern District of New York stated.
Herbalife stock initially fell 12 percent on the news, and trading was halted temporarily. But it quickly recovered most of those losses and was down by just 0.32 percent at the market’s close.
Ackman’s investigation into Herbalife initially focused on its business in the U.S. but later looked into the operations in China, where operating a multilevel marketing company is illegal. In a March 2014 public presentation, Pershing Square suggested Herbalife was violating Chinese law.
Pershing Square helped provide Chinese whistleblowers to the feds, according to people familiar with the investigation. Last year Herbalife reached a settlement with the SEC, paying a $20 million fine to settle charges of misleading investors regarding its payment of commissions in China.
Ackman’s efforts had previously led to an investigation by the Federal Trade Commission, culminating in a 2016 settlement with Herbalife in which it agreed to pay $200 million and operate under the watch of a federally-designated monitor for seven years.
In May, Herbalife disclosed that it had reached a tentative agreement with the Justice Department over the bribery charges.
“The Company cooperated with the SEC and DOJ and has now reached separate resolutions with each of them,” Herbalife said in a securities filing Friday.
Ackman, Fidelity, and Renaissance declined to comment. Icahn, Vanguard, State Street, BlackRock, Route One and D.E. Shaw did not return requests for comment by press time. Deccan could not be reached.