Herbalife has suffered a blow in its bid to beat back hedge-fund honcho Bill Ackman.
The controversial maker of protein shakes and supplements revealed yesterday that it was forced to shelve a big debt sale to fund a stock buyback program after losing its auditor.
KPMG resigned the Herbalife and Skechers accounts last month amid allegations that a former KPMG senior partner leaked information about the two companies.
“We had no choice but to temporarily halt this specific debt deal,” Chief Financial Officer John DeSimone told investors on yesterday’s earnings call.
“While there may be alternatives of financing a large buyback, our current thinking is to be more conservative regarding share repurchase.”
DeSimone added that no buybacks are likely in the second quarter.
He also said the company is preserving $365 million in cash to be able to react quickly to events largely related to “our detractors.”
Dimone said the bigger debt deal would have allowed Herbalife to buy back “a meaningful amount of company stock.”
Observers speculated that the buyback was designed to force Ackman, who has accused Herbalife of being a pyramid scheme, to cover his $1 billion Herbalife short at a loss.
Indeed, DA Davidson analyst Tim Ramey called the deal a “loaded bear rifle” aimed at Ackman.
Ackman declined to comment.
In a filing late Monday, Herbalife said it is looking for find an independent auditor to replace KPMG but can’t be certain that it will be successful.
Herbalife said there is a limited number of big accounting firms that can handle its global operations and that some firms may be put off by “recent allegations and other negative information put forward in the market place by a short seller” — presumably Ackman.
KPMG withdrew its certification of Herbalife’s past results in the wake of the insider-trading scandal, leaving the firm without audited financials.
Herbalife shares closed at $39.71, up 2.5 percent.