Market muted as week ends; Herbalife bonds, equity push higher on news of FTC settlement

By Stephanie N. Rotondo

Seattle, July 15 – Convertible bond investors were focusing on Herbalife Ltd. on Friday after it was announced the company had reached a settlement with federal regulators over its business operations.

“That’s the only thing trading, because of the news,” a trader said.

Early in the day, the trader noted that the stock was up “like $10 bucks,” as the 2% convertible notes due 2019 traded as high as 108.

For the bonds, that was a gain of about 3 points.

That being said, most of the trades occurred in a 106.25 to 107 range, which was still up a point or so.

As for the equity, it closed up $5.89, or 9.92%, at $65.25. That was down from the intraday high, however, and the stock saw well-above average trading volume.

The multinational nutritional supplements company was being investigated by the Federal Trade Commission over allegations that it was a pyramid scheme.

Activist investor Bill Ackman was one such critic, reiterating his views on the company on Thursday, just one day before the settlement was announced. It was Ackman’s first comments made in December 2012 that prompted the FTC’s probe.

Under the terms of the settlement, Herbalife will pay $200 million to the government. It will avoid being labeled a pyramid scheme but must restructure its U.S. operations by altering the way it compensates its salesforce, among other things.

Herbalife has said it has no plan to change its business model. For his part, Ackman believes that even if Herbalife changes its structure to what the FTC has demanded, it won’t do much good.

“We expect that once Herbalife's business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse,” Ackman’s Pershing Square Capital management said in a statement on Friday.

Mentioned in this article:

Herbalife Ltd. NYSE: HLF

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