Herbalife (HLF) investors can hardly wait any longer for the Federal Trade Commission to reach a resolution on pending investigations into whether the company operates a so-called pyramid scheme.
The nutrition-products distributor -- whose ongoing feud with billionaire activist Bill Ackman reentered the spotlight with the recently debuted documentary Betting on Zero -- is under multiple investigations, but expect the FTC investigations to conclude shortly, according to analysts with Sterne Agee.
And once the probe -- which launched less than two years after Ackman unveiled in 2012 that his hedge fund, Pershing Square, took a $1 billion short position against the company while publicly assuring its collapse -- is settled, going private may be the most logical next step for Herbalife.
Such a move would probably be executed through a leveraged buyout, similar to the one that private equity firms Whitney & Company and Golden Gate Capital orchestrated to take Herbalife private in 2002. (The company later reentered the public market through a December 2004 IPO.)
And Herbalife's largest stakeholders, namely Carl Icahn, have already entertained the notion of a take-private, according to Bloomberg, largely because such a transaction could essentially amount to cashing out at a premium -- not to mention providing some much-needed relief from Herbalife's persistent regulatory entanglements in the public sphere.
That should be especially true, given that Herbalife is currently trading at a sharp discount, Pivotal Research analyst Timothy Ramey said in a recent report.
"We want to argue that given the significant news that the company is negotiating a settlement with the FTC, and given the impressive data showing a positive inflection point in volume and top line, [the[ fair value of Herbalife, where we believe it should trade now, today, is in the $90-100 range. HLF shares should be bought, aggressively, even up 15%-20%."
Sterne Agee analysts said Monday that the FTC investigations will likely to come to a close any day, after which they will likely be settled through fines and penalties in a process lasting about 30 days.
"Herbalife is not a pyramid scheme, in or view," analysts April Scee and Theo Brito said in a Monday report., who noted it may be best for investors to wait on the sidelines for the "imminent" decision to come in because of risks of substantial penalties.
Meanwhile, Ackman, whose investment has proven sour as Herbalife shares have more than doubled since his late-2012 announcement, seems to see a more dire outcome from the FTC.
"I think they've taken this very, very seriously," he told TheStreet's Rhonda Schaffler in an on-carpet interview at the Tribeca Film Festival premiere last week of Betting on Zero. "I think it could be days, could be weeks, hopefully not months before they act. I think the government knows that this is a pyramid scheme."
