Herbalife

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Herbalife rejected a buyout offer from its largest shareholder, shaking investor hope that a higher bid was nigh and pushing shares lower.

Shares of Herbalife (nyse: HLF - news - people ) fell $1.03, or 2.6%, to $39.24 after the company said an offer from private-equity firm Whitney V was too low. The drop after the rejection came even though shares would only be worth $38 if the deal was accepted.

In early February, Herbalife's largest shareholder Whitney extended an all-cash per-share offer of $38 to the company. According to recent filings, Whitney already holds about 18 million Herbalife shares, or 25% of those outstanding.

The rejection of the bid wasn't unexpected, but "Whitney's refusal to improve the offer comes as a surprise," said William Pecoriello, an analyst at Morgan Stanley.

Almost immediately after the bid was extended, investors and analysts questioned if the bid was high enough, particularly since the company has recently focused on expansion in China. Some estimates have put potential revenue from the country as much as several hundred million dollars annually. (See: "Herbalife Buyout Offer Seen As Too Low.")

And its outlook has only seemed to improve since the bid. Last week, the company announced it had received a license from China's Ministry of Commerce to directly sell its products in the country. The company also upped its 2007 guidance at the end of February and announced a sponsorship deal with the Los Angeles Galaxy soccer team last week.

"Several data points suggest that Herbalife's fundamentals are stronger than thought at the time when Whitney presented the offer," said Pecoriello.

Whitney and Golden Gate Capital previously bought Herbalife in 2002. They then took the company public in 2004.