Uri Gruenbaum | Nov 27, 2014 08:22AM ET
If Herbalife’s (NYSE:HLF) new press release seems too good to be true, it’s because it is. In a statement issued on November 25th, Herbalife flaunts that Michael Johnson, Chairman and CEO, increased his personal shares in the company by engaging “in a net exercise transaction involving 750,000 stock options that were granted to him in December 2004 and were due to expire in December 2014.” Herbalife cited Johnson’s “complete confidence in the continued and future success of the company” as reason for the sudden transaction.
The press release prompted such excitement that the TipRanks team thought there was a bug in the Insider Trading portion of the Herbalife stock page . At the bottom of the page, the purple logos indicate that someone within the company has sold shares while the green logos indicate purchased shares. When a purple logo appeared on November 25th labeled with Michael Johnson’s name, TipRanks was sure there was a miscalculation.
However, TipRanks found that Johnson’s newfound increased ownership of the company is far from what it seems. Herbalife’s November 25th press release highlights the 750,000 shares purchased by Johnson but neglects to mention that he sold 457,000 shares in the same day for the market price of $41.99 a share.
Johnson had $5,812,500 cash to exercise since he purchased 750,000 shares in May for an exercise price of $7.75. The press release disguises Johnson’s transactions on November 25th as a new investment in Herbalife when he really sold fewer shares at a higher price, ultimately raking in a large profit. This transaction seems suspicious for many reasons:
Excerpt taken from ValueWalk, November 26th article entitled, “Herbalife Ltd. (HLF) CEO Buys Shares, Bill Ackman Not Impressed.”
Considering all of these factors, Herbalife ’s announcement is too good to be true. Nevertheless, the stock went up 3.3% after the announcement because investors were misled by the conniving press release. Enjoy Thanksgiving with your friends and family but remain wary of Herbalife’s attempt to instill confidence in the company.
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