Herbalife Ltd., the multilevel marketer of nutritional supplements and other products, disclosed Monday it has been in talks with a “prospective financial investor" to go private, but the conversations formally ended last week.
Herbalife’s share price shot up on news of the talks and an offer designed to lure its shareholders to sell back their shares to the company.
Beginning in November 2016, representatives of Herbalife “began discussing a potential business combination transaction with a prospective financial investor," Herbalife noted Monday in a regulatory filing, referring to the prospective investor as “Party A."
After entering a non-disclosure agreement with Party A, from mid-January 2017 to mid-May, Herbalife’s representatives provided the prospective investor “information regarding its business and engaged in discussions regarding the information exchanged and a potential business combination," Herbalife revealed in the Securities and Exchange Commission (SEC) filing.
The talks with the prospective investor were formally terminated on Aug. 16, the filing noted.
While Herbalife did not disclose the prospective investor’s name, sources with knowledge of the talks told CNBC that a private-equity firm was involved and it was possible the talks could resume.
On Monday, Herbalife also announced an offer to purchase up to US$600 million in shares of common stock for between $60 and $68 per share.
The “modified Dutch auction" offer provides a special incentive for participants to sell back their shares to Herbalife. They would receive an additional cash payment if Herbalife is acquired within two years in a “going-private transaction."
The offer is set expire on Sept. 19.
Related to the offer, Carl Icahn and affiliates controlled by him agreed for two years not to increase their total ownership above 50 percent of Herbalife’s outstanding shares, unless Icahn and his controlled affiliates acquire all the company’s outstanding shares.
According to Reuters, Icahn—Herbalife's largest shareholder—has approximately a 24 percent stake in Herbalife.
On Aug. 15, the last trading day before Herbalife commenced its offer, its shares (HLF: NYSE) had a closing price of $61.95.
Michael Swartz, an analyst with SunTrust Robinson Humphrey, anticipated (in an equity research report) that the share price would move higher on the news that Herbalife had been in talks to go private—and he was right. Shares Monday afternoon were up nearly 10 percent on the New York Stock Exchange.
In February, Herbalife’s board of directors authorized a new, three-year $1.5 billion program to repurchase its shares. As of Aug. 15, the company had nearly 94 million common shares outstanding.