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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.