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Herbalife Investors Win Battle

NEW YORK (TheStreet) -- Shares in the nutritional supplement company Herbalife (HLF - Get Report) soared over $6 a share to near 52-week highs after revealing its new auditor PricewaterhouseCoopers finished re-auditing the company's 2010 to 2013 financials.

The very public Herbalife short seller Bill Ackman has allowed a significant gain for his hedge fund Pershing Square turn into a horror-show short squeeze. A couple of months ago, I touched on Pershing Square's lack of gains for the year as a result of the monster short position. Things have only turned worse since.

On Tuesday, shares in the company reached a new all-time high trading near $78.50 a share. According to a copy of Pershing Square's investment letter to shareholders for the period ending Sept. 30, the amount of capital dedicated to Herbalife's short position is about 12% of funds, and the hedge fund has about $11.2 billion under management. If the position isn't leveraged, we can extrapolate a short position size of $1 billion or more after adjusting for redemptions. The numbers also appear correct based on Ackman's comments.

On Sept. 30, Herbalife closed at $69.77 a share, and if we use a current price of $77, the position lost another 10.3%, or $103 million, in under three months. It becomes even more intriguing when calculating the difference between the closing price of $32.94 on Dec. 31, 2012, after the shares were hammered by Ackman's presentation.

HLF Book Value (Per Share) Chart

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