UPDATE 2-Herbalife hires PwC as new auditor, shares up

Tue May 21, 2013 4:08pm EDT

By Martinne Geller

May 21 (Reuters) - Herbalife Ltd said on Tuesday it has engaged PricewaterhouseCoopers LLP as its auditor, replacing KPMG in the wake of alleged insider trading.

Shares of the nutritional products company rose 4 percent in afternoon trading, as the engagement of an auditor is often seen as lending credibility to a company's financial statements.

Herbalife's stock price has been volatile recently as big name investors William Ackman, Carl Icahn and Daniel Loeb battled over the company's future with Icahn and Loeb saying the price should rise while Ackman said the company's stock price would eventually go to zero. Ackman's Pershing Square Capital Management took a roughly $1 billion short position, while Icahn and Daniel Loeb took the other side of the bet.

Loeb has since exited his Herbalife position with a $50 million profit, while Icahn raised his stake and put two representatives on the company's board.

Herbalife said on Tuesday that PwC would audit its financial statements for fiscal year 2013 and reaudit statements for fiscal 2011 and 2012.

Ackman, who has criticized Herbalife, comparing it to a pyramid scheme, has spoken less about the company in public recently. But, in a letter sent to investors last week, Ackman said he was standing by his short thesis, five months after unveiling it in public and arguing that Herbalife should eventually go out of business.

His letter went on to say that the engagement of a new auditor could be positive for the short thesis as the reauditing of the company books could lead to "some additional interesting disclosures".

"At a minimum, every day that Herbalife goes without an auditor further calls into question the legitimacy of the business in our view," Ackman said in the letter, which was sent on Thursday. A copy of it was seen by Reuters.

Pershing Square did not immediately respond to a request on Tuesday to comment on the letter.

Last month, KPMG resigned as auditor for Herbalife and Skechers USA Inc and parted ways with Scott London, a senior auditor. U.S. authorities have filed criminal and civil charges against London, who is accused of passing on non-public information about the companies to his longtime golf partner, jeweler Bryan Shaw.

Herbalife shares were up $1.91, or 3.9 percent, at $51.12 on the New York Stock Exchange.

They had risen 10.7 percent on Monday. S&P Capital IQ analyst Tom Graves had said on Monday that the stock was likely moving due to hopes that Herbalife was close to naming a new auditor and possible purchases by short-sellers buying back shares to cover their negative bets. Graves stood by his "hold" rating on the stock on Monday.

Ackman said the investment by Icahn, who now owns more than 16 percent of Herbalife, has been "helpful to our ability to borrow stock at low cost, for he has catalyzed most other shorts in the investment to cover their positions."

Short-sellers bet that a stock price will fall by borrowing shares at one price and then repurchasing them at a lower price to repay the loan.