Herbalife suffers after David Einhorn asks questions

Marketplace Contributor May 2, 2012

David Brancaccio: You may not take a diet or nutritional supplement made by the company Herbalife, but you might want to watch its stock today, which is rebounding at the moment. But Tuesday, shareholders lost $1.6 billion, all because one activist investor asked a few questions.

Our New York bureau chief Heidi Moore reports.

Heidi Moore: When Herbalife talked to investors yesterday about the company’s financial picture, the CEO had good news: the company’s profit for the first three months of the year jumped 20 percent.

Then, a hedge fund manager named David Einhorn asked a couple of questions. His tone was curious, mild and he ended politely.

The Godfather might as well have ordered a hit. Herbalife’s stock started the day above $70 dollars a share; by the close, it was clinging to $56 a share. Einhorn’s reputation, you see, preceeds him.

Jason Raznick: It is that David Einhorn effect. At Benzinga, we have a thing on the wall: David Einhorn speaks, we must listen.

That’s Jason Raznick, the CEO of stock investment site Benzinga.com. He says he admires Einhorn’s insight and keeps an 8 x 10 glossy picture in his office.

Einhorn runs Greenlight Capital and finds companies with deep weaknesses, then he bets against their stocks. He’s powerful.

Raznick: We call them whales — hedge fund managers that have a lot of money to throw around.

Einhorn made his name by sussing out problems at Lehman Brothers long before the bank would admit its financial results were fudged. Einhorn has also found problems at Green Mountain Coffee and many other companies. As soon as he makes a call, their stocks tank.

Raznick: It’s like where there’s smoke, there’s fire and you want to pay attention to what David Einhorn says.

Einhorn’s questions were about how Herbalife counts sales from its distributors. The company rushed to defend itself, and some analysts backed it up. But no one thinks the argument is over.

In New York, I’m Heidi Moore for Marketplace.

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