Shares of Herbalife Ltd. fell as much as 21 percent, wiping out $1.8 billion of market value, after short-seller David Einhorn questioned why the nutritional supplements marketer had stopped disclosing details about its distributors.
Einhorn, who heads Greenlight Capital, has a reputation for questioning the business practices of companies that he also bets against by selling their shares short.
"You know when he gets involved ... there may be an opportunity to short," said analyst Gary Albanese of brokerage Auriga USA. "I think that's the thought process, that he is short. It is his involvement that has spooked investors."
Einhorn did not make any specific allegations or critical comments during the Herbalife's post-earnings conference call on Tuesday, but peppered management with questions about the company's direct selling business model.
Albanese said it appeared Einhorn was questioning how much product was being sold to customers as opposed to how much was being consumed by distributors themselves.
"Are distributors just using their status as a way to get a discount for the products?"
Einhorn noted that Herbalife had stopped disclosing a breakup of its three distributor groups — self-consumers, small retailers and sales leaders — in its most recent 10K filing to the U.S. Securities and Exchange Commission.
Chief Financial Officer John Desimone, who took over the job in January, said the company removed the information due to the change in CFO and because he did not think the information was valuable to the business or to investors.
But he offered to provide the information in future.
Einhorn, who famously shorted Lehman Brothers before it went bankrupt in 2008, has moved stock prices before by questioning a company's business and accounting practices, as he did most recently with Green Mountain Coffee Roasters Inc.
Shares of Herbalife fell to a low of $55.56 in afternoon trading on the New York Stock Exchange. At the current share price, Herbalife is valued at about $6.5 billion.
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