A worker cleans the logo on the Herbalife sign as finishing touches are put on the company's building in Torrance, Calif. The company reported fourth quarter earnings and revealed that it's cooperating with an SEC request for information.
On Tuesday, Herbalife reported fourth quarter 2012 earnings that beat expectations. The Los Angeles-based nutritional supplements maker also revealed that it's bought back four million of its own shares, to the tune of $162 million.
The buybacks are important because hedge fund manager Bill Ackman has amassed a $1 billion-plus bet against Herbalife's stock, calling the company a pyramid scheme and declaring his intent to send the share price to zero.
Herbalife had set aside $1 billion for buybacks, so it's barely made a dent. And by buying back its own shares, it supports the stock price and makes life uncomfortable for Ackman. The move wasn't unexpected, but investors who are bullish on Herbalife would probably like to see the pace of buybacks pick up.
But there's another new wrinkle to this story: Herbalife also filed information with the Securities and Exchange Commission on Tuesday that confirms the government has taken an interest in its dealings, confirming something that the Wall Street Journal reported earlier this year. This is from Herbalife's 10-K filing (a standard piece of financial reporting for all public companies):
From time to time, we receive inquiries from various government authorities requesting information from the Company. Following December 2012 market events and a subsequent meeting we requested with the staff of the SEC’s Division of Enforcement, the staff requested information regarding the Company’s business and financial operations. Consistent with its policies, the Company is and will fully corporate with these inquiries.
Ackman is banking on federal regulators continuing to take an interest in Herbalife's business. Those who have bet against Ackman — including big guns such as corporate raider Carl Icahn and hedge funder Dan Loeb — are hoping that Herbalife's history of not being aggressively examained by regulators will send the stock higher and put a costly end to Ackman's "big short."
On balance, Herbalife's solid fourth quarter financials weren't a shock. But from the 10-K, it sounds as if the SEC's interest is ongoing, which should please Ackman.
He shouldn't get cocky. Even though the SEC may be examining Herbalife, Ackman really needs the Federal Trade Commission to get in on the action. And it's far from clear, at this point, that the FTC intends to do anything.