* Co to make changes to clarify wholesale customers,
* To provide more info on average compensation
* Investor Ackman says his questions still unanswered
Feb 20 Herbalife Ltd said it will more
clearly identify different types of customers, responding to
criticism from investors including hedge fund manager William
Ackman, and added it has held "short" discussions with
billionaire investor Carl Icahn.
The diet supplements company, which sells products through a
network of independent distributors, has come under intense
scrutiny from Pershing Square Capital Management's Ackman, who
revealed a short position in the stock in December and called
the business "a pyramid scheme".
On a post-earnings conference call with analysts on
Wednesday, Herbalife said it will more clearly identify the
wholesale customers among its 3.2 million distributors from
The company's use of the word "distributor", and what
payments they receive from the company, has been central to the
debate over its business model.
Herbalife also posted on its website updated and expanded
statements of average compensation that will also be included in
every new distributor application in the United States by the
end of February.
"This document sets a new disclosure standard for
compensation in the multi-level-marketing industry," Chief
Executive Michael Johnson said.
However, Ackman appeared unsatisfied with the changes.
"If Herbalife really wants investors to understand their
business better and provide full transparency as (CEO) Johnson
said on the call, they should start by answering even one of the
284 questions we submitted publicly to them two weeks ago," the
investor said in an emailed response.
Shares of Herbalife, which raised its full-year earnings
forecast on Tuesday, closed down 5 percent at $37.78 on the New
York Stock Exchange on Wednesday.
Ackman's arguments include assertions that Herbalife's
disclosure on average compensation is "materially deceptive" and
that the company's distributors "experience an abnormally high
Herbalife said earlier this month that on average, 73
percent of its "distributors" join Herbalife just to get a
discount on the products rather than to earn money.
The company said 88 percent of its distributors received no
payments in 2012, including 71 percent who did not recruit any
other distributors. The rest of them potentially recruited other
distributors but did not make money because the recruits did not
sell enough products.
Herbalife said on Wednesday it has had short discussions
with Icahn, who last week revealed a 13 percent stake in the
company and offered to help the company explore options,
including a recapitalization and a going-private transaction.
Icahn and another hedge fund manager, Third Point's Daniel
Loeb, have defended the company against Ackman's allegations.
"Yes, we've had short discussions with Icahn. Beyond that,
there's nothing concrete to report," said CEO Johnson in reply
to an analyst's question on the earnings call.
Icahn has declined to say whether his firm, Icahn
Enterprises LP, would launch a tender offer for shares
of the weight-loss products company but said last week that
financing a takeover would not be a problem.