Herbalife Ltd agreed to pay $200 million and change the way it does business to avoid being labeled a pyramid scheme by regulators, a blow to hedge fund manager Bill Ackman who for years has been betting against the dietary supplements maker. - From Reuters
Shares of Herbalife jumped more than 20 percent after the settlement was made public and the Los Angeles-based company said its board had cleared the way for billionaire investor Carl Icahn to boost his stake in the company to as much as 35 percent from his current 18.3 percent.
The FTC said Friday's settlement represented a fundamental change in how the company operates, as it will require rewards to distributors to be based on retail sales rather than recruiting new distributors.
"While it appears that Herbalife negotiated away the words 'pyramid scheme' from the settlement agreement, the FTC’s findings are clear," Pershing Square said in a statement on Friday.
(bit.ly/29I0D0a) Potential difficulties in implementing the changes lie in how the company will differentiate between different classes of buyers: those who buy for personal use, or to distribute; and how to define what constitutes a "legitimate end-user," FitzPatrick said.
Herbalife said that Jon Leibowitz, a former chairman of the FTC, would advise the board of directors regarding compliance with the settlement.