Supplement Maker Thrives After Critic Stays Silent

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By NATALIE JARVEY Staff Reporter

Investor interest in supplement company Herbalife Ltd. has lacked energy since a prominent hedge fund manager questioned the company’s disclosures in May.

But shares got a jolt after the short-seller, David Einhorn of Greenlight Capital Inc. in New York, said at an investor conference in New York last week that he would not speak at the event about the L.A. distributor of weight loss products and nutritional supplements.

Einhorn’s apparent relaxed scrutiny of the company caused shares to spike 16 percent last week to close at $52.36, making it one of the top gainers on the LABJ Stock Index for the week ended Oct. 3. (See page 26.)

Einhorn, famous for betting against Lehman Bros. Holding Inc. before the firm’s 2008 collapse, first disrupted Herbalife’s stock price during a May investor conference call. He asked for more information about the company’s individual distributors and asked why Herbalife had stopped reporting the level of activity from those distributors.

His questions evoked past accusations that Herbalife was a pyramid scheme and caused investors to worry that the company’s business model could become controversial again.

His comments came during Herbalife’s first quarter conference call, when the company reported increases in first quarter net income and revenue. It also forecast a second quarter below estimates. A selloff followed and the stock price slipped nearly 20 percent.

Herbalife then promised to disclose more distributor information. It also said that Einhorn’s questions were standard for new investors and did not reflect on the company’s business model or its strong financials.

Einhorn declined to comment for this article through a Greenlight Capital spokesman.

Tim Ramey, an analyst for D.A. Davidson & Co. in Lake Oswego, Ore., said Einhorn’s questions caused investors to worry that trouble was brewing at Herbalife.

“It’s been one of the best performing companies that I have and one of the worst performing stocks,” he said. “There’s this irrational fear that there is something terribly wrong in Herbalife land.”

Einhorn has been silent about Herbalife since May, but attendees of last week’s Value Investing Congress in New York speculated that he would speak about the company during a presentation. However, he refrained from any specific comments about Herbalife.

Julian Cacchioli, Herbalife’s vice president of worldwide corporate communications, said that investors have regained confidence in the company.

“People are looking behind some of the rumors and speculations,” he said. “They are looking at the performance and fundamentals of the company. That’s what’s driving the stock price.”

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