Herbalife has had a bit of a rough month as we have pointed out in several posts. The company yesterday announced that its board has approved a $150 million increase to the company’s share repurchase program.
The boost raises the total authorized value of the buyback program to $600 million.
As of April 28, Herbalife had 65.1 million shares outstanding so the new program will allow the company to purchase roughly another 3.75M shares on top of the already 11M it is repurchased since April 2007. The move may be significant because the company is taking more aggressive steps to own its shares as opposed to letting them be in the publics hands - or in this case, Minkow’s possibly. The company would have to come up with another $500M to take a majority position in the company (at today’s stock price) which leads me to believe that Minkow’s plan may actually backfire.
Think about this, if Minkow is successful in tarnishing the Herbalife brand from a PR standpoint and in particluar, as it relates to its stock, the company will need to come up with less cash to purchase its stock and take the company private. If this happens (going private) Minkow would not have the financial vehicle he is allegedly using today to finance his operations (it has been alleged that Minkow owns short positions in companies like Herbalife and USANA and the winfall profits he makes from the stocks going down from his “research” provides the financial capital for him to fund his operation).
A private Herbalife would have a mass of cash to focus on building the business, marketing its products through its distribution network and giving back to the community without having to deal with the distractions of being public. At this juncture, I really dont see any value in Herbalife being a public company. The focus should be on the distributors which make up the heart and soul of the organization and make them the shareholders through a private investment bonus pool that can reward and compensate success. While Minkow may be successful in bringing some issues to light, he does need to be careful that he doesnt push too far so that he is unable to fund his operations as he appears to be today.
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