Sale of Herbalife Is Sought by Two Investment Groups
Two investor groups Tuesday called on Herbalife International Inc.’s board to put the company on the auction block, citing concern about the company’s direction since the death of its charismatic and longtime leader, Mark Hughes.
Steel Partners II and Jana Partners asked the board in a public letter to investigate a possible conflict of interest by three of its members: Christopher Pair, president and chief executive of the Los Angeles-based seller of nutritional products; Conrad Klein, vice president; and Chairman Jack Reynolds.
All three also serve on the Mark Hughes Family Trust, which controls 42% of Herbalife’s stock.
“We just thought it was time that somebody gave management notice that some of their actions were not in the best interest of the shareholders,” said Barry Rosenstein, a partner with New York-based Steel.
Together, Steel and Jana, based in San Francisco, own 739,000 shares of nonvoting Herbalife Class B common stock, or 3.9% of the 18.9 million Class B shares outstanding as of May 2.
As additional justification for selling Herbalife, the investor groups also pointed to the company’s “unimpressive” financial performance since Hughes died in May 2000. Herbalife’s fiscal year 2000 profit fell to $1.22 a share on sales of $944 million from per-share earnings of $1.86 and revenue of $956 million a year earlier.
Furthermore, Steel and Jana said their letter was prompted by reports that the board recently rejected an outside party’s offer to acquire Herbalife and was considering a buyout by Pair, Klein and Reynolds.
“We would recommend that the board immediately initiate a fair auction process for the sale of the company to the highest bidder,” the investor groups said.
In a written response to the investors’ letter, Pair said trade regulations prevented him from commenting on any possible acquisition.
As for a conflict of interest, Pair said that Herbalife’s board is composed of mostly outside directors who seek professional advice in compensating company executives.
“Our board regularly reviews, with the benefit of outside counsel and other professional advisors, many of the subjects as to which you have expressed concern,” Pair wrote.
Mark Hughes, who died at age 44 from a combination of prescription drugs and alcohol, founded Herbalife 20 years ago, with its now famous “lose weight now, ask me how” slogan. The Los Angeles-based marketer quickly grew to its current annual sales of nearly $1 billion and work force of 1,000 employees in Southern California.
Herbalife relies on a worldwide network of more than 100,000 independent distributors, most of them working part time, to sell weight-loss and herbal products.
Steel and Jana also asked Herbalife’s board to use its cash to buy back stock on the open market and to retain a nationally recognized investment bank for advice on protecting shareholders.
In Nasdaq trading, Herbalife’s Class A shares rose 50 cents to close at $10.70, and Class B shares climbed 44 cents to $10.41.
