Why Is Icahn Still Interested In Buying Herbalife Shares?

It seems activist investor Carl Icahn is on a buying spree and wants to buy even more shares of Herbalife Ltd. (NYSE:HLF) , after acquiring almost 3 million shares in the past few weeks, per sources.

During the CNBC Institutional Investor Delivering Alpha Conference held on Tuesday, Icahn asked the U.S. Federal Trade Commission (“FTC”) for permission to buy as much as 50% of the company. The step signals Icahn’s confidence in the nutritional products maker despite continuous allegations by fellow billionaire Bill Ackman who calls Herbalife’s business model a pyramid scheme.

We note that Icahn, the largest shareholder in Herbalife, purchased 2.3 million shares of Herbalife last month and then added another 306,846 shares earlier in September. Buying more and more shares of Herbalife was an answer to Ackman’s statement, who reportedly told CNBC on Aug 26 that Icahn was looking to sell his stake in the company. The step also reflected his opposition to Ackman, who has been criticizing the company since Dec 2012.

Icahn and Ackman have been battling over Herbalife for years. Icahn's position in Herbalife is worth more than a billion dollars. Ackman, on the other hand, took a short position in the company in late 2012. He claimed that the company is running a pyramid scheme, which involves making money by way of recruiting more salespeople rather than selling products. Such models are illegal because they eventually collapse once there are no more people to recruit.

Ackman's back-to-back allegations prompted a civil investigative demand in 2014 by the FTC related to the company’s marketing practices. In mid-July 2016, Herbalife reached a settlement with the FTC, and agreed to pay $200 million as penalty charges. The FTC had alleged that Herbalife's earnings potential claims were deceptive and its compensation structure hinged on recruiting other product distributors instead of its selling capability.

Ackman however maintains his stance against Herbalife even after the maker of weight-loss shakes and supplements reached a settlement with the FTC.

Herbalife, on its part, has posted four videos in the series on TheRealBillAckman.com, which shows the actual motive, investment strategies and questionable tactics of Bill Ackman. Through these videos, the company wants to show investors that Ackman has put his personal agenda ahead of the interests of the investors in order to pull down Herbalife shares.

Nevertheless, Herbalife remains upbeat about its prospects. The company reported better-than-expected second-quarter 2016 results on the back of higher sales and improving volume trends. Management also raised its view for full year 2016.

Herbalife currently carries a Zacks Rank #2 (Buy).

Other well-positioned stocks in the broader consumer staples sector include Omega Protein Corp. (NYSE:OME) , Inter Parfums Inc. (NASDAQ:IPAR) and Coty, Inc. (NYSE:COTY) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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