Carl Icahn's exploration of a sale of his Herbalife Ltd. stake to a group of investors including William Ackman is rich with irony, but the nutritional-products company's shareholders aren't amused.

As The Wall Street Journal reported in a front-page story Friday, Mr. Icahn has this month had talks with investment bank Jefferies, which has tried to cobble together the group to buy his roughly $1 billion stake.

Mr. Ackman, of course, has been vocally bearish on Herbalife, while Mr. Icahn has taken the opposite position.

Shares of Herbalife, which now faces the prospect of losing the support of its biggest booster and the holder of several board seats, were down about 6% to $58.27 in late-morning trading, having recovered from a steeper decline.

Mr. Ackman, whose short position only pays if the stock falls by nearly half, went on CNBC Friday morning and confirmed the story, adding that he was willing to spend $30 million or more to get Mr. Icahn out of the stock. He would then quickly sell the shares, which he says Mr. Icahn has been buoying.

Meanwhile, Mr. Icahn has reason to sell, not the least of which is that he could lock in a profit of as much as $450 million based on the prices that were discussed, according to people familiar with the matter. He is also generally wary of broad stock-market valuations right now.

As a refresher: In December 2012, Mr. Ackman first proclaimed Herbalife a pyramid scheme. The company denied the claim and accused him of market manipulation. Months later, Mr. Icahn piled in and said Herbalife was a sound business. Ever since, there has been plenty of drama and a bright spotlight shone on a previously little-known multi-marketing platform with a market value of little more than $5 billion. The constants have been Messrs. Ackman and Icahn's vehement disagreements.

Why, then, would they come together?

To start, a deal like the one discussed would, in both their eyes, likely deliver a profit.

Mr. Icahn's 17 million shares were bought for $629.3 million, according to a federal securities filing, or an average of about $37.02 a share. Jefferies has been trying to arrange a deal in the low-to-mid $60-range, the people said. That could have put Mr. Icahn in line for a profit of up to $450 million.

No deal has been reached and it is possible Mr. Icahn sells no stock. He also has the freedom to buy more based on a recent agreement to lift a ceiling on his stake to just under 35%—a right he may be more inclined now to exercise. [Mr. Icahn currently owns about 18% of the company.]

The activist, who has been warning of a stock market correction, has been shedding even stocks he says he likes, such as Apple Inc.'s. At Herbalife, after several years of gains and a recent settlement with regulators that likely removed one impediment to insiders selling, he has become willing to entertain offers, the people said. He has privately said he still supports the company, some of the people said.

But Friday's market reaction underscores the difficulty of exiting Herbalife.

With such a large block, and in a volatile, rumor-prone stock, selling down in pieces would likely damage Mr. Icahn's profit as the shares would likely decline while he sought to exit. [If he sells into the open market, he would have to quickly file with securities regulators, thereby tipping other investors of his intent.] Even taking a discount to exit all at once would likely have saved Mr. Icahn quite a bit. He was down more than $60 million Friday, on paper.

Mr. Icahn has used Jefferies in the past to get out of stocks in which he has a big stake, such as Hain Celestial Group Inc. Jefferies was willing to take as much as $250 million of Herbalife stock in a deal, one person said.

Of course, adding Mr. Ackman to the possible buyer list could pose a risk for any other bidders—given he's loudly tried to take the stock to zero. Indeed, included in the discussions about Mr. Ackman taking a small portion was the possibility of him pledging to refrain from bashing the company for a certain amount of time, one person said.

Write to David Benoit at david.benoit@wsj.com

 

(END) Dow Jones Newswires

August 26, 2016 13:55 ET (17:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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