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Herbalife had talks to go private; steps up pressure on long-time nemesis Bill Ackman with tender offer

  • Herbalife says it recently held talks to go private but the discussions ended last week without a deal.
  • The potential buyer was not disclosed, but people with knowledge of the conversations said a "major" private-equity firm was involved.
  • Such a transaction could have been a significant blow for Herbalife's long-time nemesis Bill Ackman, who is short shares of the company.

Herbalife said Monday it recently held talks to go private but the discussions ended on Wednesday without a deal.

Herbalife's statement and its announcement of a stock buyback offer boosted its shares by 9 percent Monday morning.

The potential buyer was not disclosed, but people with knowledge of the conversations said a "major" private-equity firm was involved and that due-diligence had been completed. Sources also said it was possible that the talks could resume.

Short squeeze?

Such a transaction could be a significant blow for long-time nemesis Bill Ackman, who is short shares of the company, betting the stock will drop because he believes it is a pyramid scheme.

Ackman's five-year crusade against Herbalife has largely gone the wrong way financially — and found him on the wrong end of one of Wall Street's most epic battles.

Another billionaire, the financier, Carl Icahn, famously took the other side of Ackman's trade, with the two trading barbs live on CNBC in January 2013. At the time, Icahn threatened "the mother of all short squeezes," in reference to what might happen to Ackman's short position if the company were to go private.

Pressure mounts 

Even though Herbalife said in its release Monday that the recent discussions ended without a deal to go private, Ackman may not come away unscathed.

Herbalife also announced it was commencing a tender offer for up to $600 million of stock through a "modified Dutch auction," a process that lets Herbalife buy back a large number of shares from existing shareholders at the lowest possible price. Herbalife set a range for the self-tender of $60 to $68.

The company also said neither Icahn nor any members of the board of directors or the executive team would tender their shares.

Still, the move to self-tender could add pressure on Ackman if the shares he borrowed to sell short are subsequently "called back" in the process. If that were to happen, Ackman could be forced to buy Herbalife stock in the open market at a potentially much higher price.

Giving an incentive

In another twist with potentially damaging implications for Ackman, Herbalife said it would give participating shareholders a contingent value right, or "CVR" — an insurance policy of sorts should Herbalife announce a transaction to go private within the next two years. Such a move could give shareholders incentive to participate in the offering without the fear of missing out on a future deal. Sources told CNBC that Herbalife was concerned that the tender offer wouldn't be successful without the provision.

Neither Ackman nor Icahn could be reached for comment.

Herbalife said the offering would expire on Sept. 19.