Updated at: 02/28/2013 3:08 PM
(AP) LOS ANGELES - Dietary supplements company Herbalife will add two new members to its board of directors at the request of billionaire investor Carl Icahn, who has backed the company in a public spat with hedge fund manager Bill Ackman.
Herbalife said in a statement Thursday that it will nominate two new directors chosen by Icahn, increasing its board from 9 to 11 members. As part of the agreement, Icahn can increase an existing stake of 13.6 percent to as much as 25 percent. Icahn had previously suggested he might push the company to go private, though the 25 percent ownership cap makes that option less likely.
"We appreciate the Icahn Parties’ shared views on the inherent value of Herbalife’s operations, products and future prospects," said Herbalife Chairman and CEO Michael Johnson.
Herbalife Ltd. shares rose $2.85, or 7.6 percent to close at $40.29.
Herbalife, which uses a network of distributors to sell its nutrition and weight loss products, has been fighting off claims that its business amounts to a pyramid scheme.
Ackman argues that the company makes most of its money by recruiting new salespeople, rather than on the products they sell. Salespeople buy marketing materials and products directly from Herbalife.
Icahn has publicly upbraided Ackman, and the two got into a televised shouting match over Herbalife and their past business dealings on CNBC in late January.
On Thursday, Icahn said in a statement that "Herbalife has proven its ability to increase revenues and returns, and we will work with the company to build on its results."
Herbalife has also said that it will begin disclosing more information about its customers and product sales _ but Ackman countered that the change wasn’t enough for him.
A surge in Herbalife stock would be disastrous for investors who, like Ackman, have taken a "short" position in the company. Selling a stock short is a tactic in which an investor borrows shares in a company from a broker and then immediately sells them on the open market. The investor anticipates that the stock price will fall, allowing him or her to buy back the stock at a lower price in the future. The investor then returns the borrowed shares to the broker, pocketing the difference.
If stock rises instead, however, the investor could have to buy it back at a higher price than he or she sold it for, resulting in a loss.
(Copyright 2013 by The Associated Press. All Rights Reserved.)