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What: Shares of herbal supplement providerHerbalife Ltd. rose as much as 11.3% early Friday, then settled to trade up around 7% as of 2:40 p.m. on speculation hedge fund manager and outspoken critic William Ackman had begun to cover his short position on the company.
So what: The speculation comes on the heels of a federal judge's decision on Wednesday to dismiss a shareholder lawsuit alleging Herbalife's multi-level marketing model is an illegal pyramid scheme. Even so, Ackman released a statement on Friday through his fund, Pershing Square, saying, "Despite Herbalife's misleading public suggestions, the court's decision did not address in any way whether Herbalife is an illegal pyramid scheme, nor did the Court exonerate or bless Herbalife's business practices."
For perspective, on Wednesday Herbalife issued its own press releasestating, "Herbalife welcomes the decision ... to dismiss the case. As we have consistently stated, we are confident in the strong fundamentals of our business model and remain committed to helping people and communities improve their nutrition."
Now what:Ackman also revealed last week that his position was close to breakeven with the stock in the mid-thirties. Given Ackman's latest comments and the fact he's repeatedly argued Herbalife stock will fall to zero, it seems unlikely he would be unwinding his short position now. As a result, and considering I'm not particularly fond of Herbalife's business in the first place, I have no problem continuing to avoid Herbalife stock today.
The article Why Herbalife Ltd. Stock Popped (Again) on Friday originally appeared on Fool.com.
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