Shares of downtown-based nutrition supplement company Herbalife Nutrition Ltd. plunged 25% on Dec. 6, the day after it announced a planned $250 million convertible note offering.
The note offering was announced after market close on Dec. 5. The next day, shares of Herbalife plunged 25.4% to $13.06. The decline continued in choppy trading on Dec. 7, ending with another 3% drop to $12.62. By comparison, the Nasdaq index fell 2% on Dec. 6 and another 0.3% on Dec. 7.
The note offering came five weeks after Herbalife’s board ousted John Agwunobi as chief executive and reinstated on an interim basis longtime former chief executive Michael Johnson.
It also comes at a time when the company’s sales have hit rough waters following pandemic restrictions that cut into the effectiveness of the company’s product distributors and the loss of markets in Russia and Ukraine following the former’s February invasion.
For the third quarter, Herbalife reported sales down 9.5% from the third quarter of last year to $1.3 billion.
“Given the rapidly shifting macroeconomic sentiment and backdrop, as well as increased volatility in the marketplace, the company is withdrawing FY 2022 guidance,” Herbalife said in the earnings statement issued on Oct. 31. “The company will periodically reassess its ability to provide guidance when we believe future performance can be reasonably estimated.”
In announcing the note $250 million offering, Herbalife said it expects to use the net proceeds to repurchase some of the company’s existing debt and for general corporate purposes. A convertible note offering is a form of short-term debt that converts to equity.
Website Motley Fool estimated that Herbalife’s note offering will lead to a dilution of up to 20% in the value of shares held by existing shareholders.
