Kerrisdale Capital Holding Onto Herbalife Shares After FTC Probe

NEW YORK (TheStreet) -- Hedge fund Kerrisdale Capital Management isn't selling its shares in Herbalife (HLF) after the company said on Wednesday the Federal Trade Commission has opened a civil inquiry into the company's practices.

Sahm Adrangi, founder and chief investment officer of Kerrisdale, said the firm won't be selling any of its 230,000 Herbalife shares because it believes the company is worth over $100 a share in any regulatory scenario. Specifically, Adrangi pointed to Herbalife's international operations as a buffer against U.S. regulatory scrutiny, a thesis that mirrors comments made by Daniel Loeb of Third Point Management when the fund was briefly a Herbalife investor.

"It's interesting the stock is down only 8% on the news of the civil subpoena from FTC. I think the idea is that we'll finally put the regulatory issues to rest after the FTC investigation, although it may take a long time for the FTC to conduct its investigation," Adrangi said.

"Given that it's practically impossible for the FTC to shut down the company's non-US operations, this development will accelerate the time when the long-term fundamentals of the story will ultimately overshadow the headline risk concerns," Adrangi added.

"[S]ince my fundamental price target for the company remains $100+ under all regulatory scenarios, I can't justify it to myself to sell shares at these levels," the hedge fund manager concluded.

Shares of Herbalife, which were halted earlier today, were down 8.2% at $60.03 in mid-afternoon trading.

Those comments indicate some Herbalife investors are willing to continue to support the company amid accusations by Bill Ackman of Pershing Square Management that it is a pyramid scheme. The FTC's inquiry may be the most troubling development for Herbalife since Ackman unveiled a $1 billion short position in the stock in December 2012 and said the company's shares were worth $0.

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