Herbalife Ltd said it would settle with the U.S. Federal Trade Commission for $200 million to avoid being labeled a pyramid scheme, a blow to hedge fund manager Bill Ackman who for years has been betting against the dietary supplements maker.

Herbalife's shares were up 8 percent at $64.08 in premarket trading on Friday.

Herbalife also said its board had cleared the way for billionaire investor Carl Icahn boost his stake in the company to up to 35 percent from a current 18.3 percent.

Icahn and Ackman were involved in a public war of words over their opposing bets on the company, with Icahn famously calling the hedge fund manager a "liar" and a "crybaby" in a CNBC interview in 2013. They have since made up.

Ackman's Pershing Square Capital Management unveiled a $1 billion short bet against the company in 2012.

Icahn said on Friday it was time for the company to consider strategic opportunities, including potential roll-ups involving competitors.

"While Bill Ackman and I are on friendly terms, we have agreed to disagree (vehemently) on this subject. Simply stated the shorts have been completely wrong on Herbalife," Icahn added in a statement. 

The settlement comes a day after Ackman said he was still betting against Herbalife shares and that the FTC probe was unlikely to end well for the company as its business model was not built upon actual retail sales.

Herbalife said it had agreed to restructure its U.S. business so that distributors are rewarded for what they sell, not how many people they recruit.

The company will pay distributors based upon retail sales and provide receipts for their transactions, it said.

"Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices," FTC Chairwoman Edith Ramirez said in a statement. 

The FTC opened a probe into Herbalife in 2014 following allegations by Ackman that the company had a fraudulent business model that he compared to a pyramid scheme, which pays members more for recruiting new members than for selling its products.

At the end of June, about a quarter of Herbalife's outstanding shares were held by short-sellers, according to Thomson Reuters data.

Reuters (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Shounak Dasgupta and Saumyadeb Chakrabarty)