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Carl Icahn's Not So Hostile Herbalife Board Seat

NEW YORK (TheStreet) - In recent years, activist investor Carl Icahn has fought for board seats at the likes of Chesapeake Energy (CHK), Navistar (NAV), Clorox (CLX) and Oshkosk (OSK) with varying degrees of success.

Embattled supplements seller Herbalife (HLF), under short-selling pressure and stinging criticism from hedge funder William Ackman of Pershing Square Capital Management, welcomed Icahn with open arms.

On Thursday, Herbalife announced it is expanding the company's board of directors by two members to facilitate seats representing Icahn and his investing conglomerate Icahn Enterprises (IEP).

That disclosure and the ability for Icahn to boost his stake in the company to 25% of its outstanding shares, indicates that the legendary activist is ready to dial up his investment in Herbalife and the pressure against arch-rival Ackman.

While Icahn's ascension to Herbalife's board and a 'standstill' agreement with the billionaire investor to acquire a maximum of 25% of the company's shares are expressed in similar language as a successful activist campaign, Thursday's move appears to be more about Herbalife's defense against Ackman.

"The Icahn Parties have agreed to, among other things, abide by certain standstill provisions and vote their shares in support of all of the Board's director nominees," reads a statement announcing Herbalife's board expansion and Icahn's right to increase his stake to 25%.

Michael O. Johnson, chairman and chief executive officer of Herbalife added he looks forward to working with Icahn and his associates.

"We appreciate the Icahn Parties' shared views on the inherent value of Herbalife's operations, products and future prospects," he said in the statement.

A statement from Icahn said he had "conducted considerable research on Herbalife and its business," adding, "over its long history, Herbalife has proven its ability to increase revenues and returns, and we will work with the Company to build on its results."

"This is not one where we don't like management. We do like management," Icahn said in a Bloomberg Television interview.

Herbalife shares gained over 7.61% to $40.29 in Thursday trading, putting shares up over 22% for 2013.

Earlier in February, Icahn disclosed a 13.6% stake in Herbalife, contesting Ackman's vocal campaign against the company and his characterization of the multi-level marketing company as a pyramid scheme. In the background of Icahn's trade is a long running dispute between the two billionaire hedge funders over a real estate deal gone sour.

Now with a billion dollars on the line for Ackman in his trade against Herbalife, and the prospect of a similar wager by Icahn, the stakes have increased.

To be seen is whether Icahn presses for any of the change that normally accompanies a successful activist campaign.

"Ackman has given us the opportunity to buy a company at a discounted price," Icahn added in the Bloomberg interview.

Since gaining seats to Chesapeake Energy's board in 2012, Icahn's influence has helped to spur asset sales, a change of the company's board structure and the departure of the company's founder Aubrey McClendon.

For Ackman, Herbalife's late-afternoon disclosure added to what was already a rough day.

Pershing Square's largest holding, J.C. Penney (JCP), reported a near 30% deterioration in its sales for the fourth quarter, pushing the struggling retailer's shares nearly 17% lower in Thursday trading.

The earning miss raises serious questions about whether the company's turnaround plan, as mapped out by CEO Ron Johnson, will succeed.

-- Written by Antoine Gara in New York

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