(Adds executive appointment, updates share price)
By Devika Krishna Kumar and Svea Herbst-Bayliss
March 24 Herbalife Ltd said it is giving
three more board seats to Carl Icahn, its biggest shareholder,
at a time short-sellers are attacking the nutrition and weight
loss company's business practices and a U.S. regulator is
probing the business.
By agreeing to nominate three additional Icahn
representatives to its board, Herbalife will potentially allow
the 78-year old activist investor to control five board seats on
a 13-person board.
Herbalife shares, which closed up nearly 7 percent on
Monday, also got a boost from news that rival direct-seller NU
Skin Enterprises Inc had been fined just $540,000 by
Chinese regulators for illegal sales practices.
NU Skin's shares closed up 18.2 percent.
Herbalife shares had lost more than a third of their value
since NU Skin said in January that Chinese authorities had
launched probes into its business.
Herbalife has since said its own practices are being
investigated by the U.S. Federal Trade Commission.
Short-sellers and other critics have accused companies such
as Herbalife, NU Skin and USANA Health Sciences Inc of
running pyramid-type schemes, questioning their sales model
under which distributors make money not only from their own
sales but from people they recruit as distributors.
Icahn, who owns a 16.8 percent stake, told CNBC on Monday
the value of his stake in Herbalife has increased by about $300
million since he bought into the stock in early 2013. The
investor said he thinks the stock price is still undervalued in
the long term but conceded that it could face "rough times" in
the short term as the battle of the company's future heats up.
Pitted against him is the company's most prominent critic,
fellow activist William Ackman, who unveiled a $1.16 billion
short position against Herbalife in December 2012.
Ackman, who heads Pershing Square Capital Management,
described Herbalife as his fund's biggest-ever loser as recently
as February, but his losses have shrunk dramatically as
Herbalife's shares have stumbled.
Since January, Herbalife's stock price has dropped 32
percent, falling sharply in the last two weeks as investors
expressed concern about the Federal Trade Commission's probe
into the company.
The investor renewed his attack on Herbalife earlier this
month when he said he had evidence the company was breaking
direct-selling laws in China, its fastest-growing
Herbalife has said it tweaked its business model in China to
meet local regulations. "These (changes) include company
operated retail stores and certification procedures for sales
personnel," the company said in its annual report.
Ackman has also accused Herbalife of unfairly targeting
Latinos and other minority groups.
Later on Monday, Herbalife said it had hired Angela
Arboleda, former adviser to Democratic Senator Harry Reid, to
manage relations with minority communities including Hispanic,
African American and Asian American.
Apart from her new role as vice president, community
engagement and health policy, Arboleda will also serve as the
lead lobbyist for Democratic outreach and work on policy issues
for the company, Herbalife said.
"RESOLUTE IN OUR COMMITMENT"
With the addition of three directors, Icahn will have five
seats on the 13-member Herbalife board.
Their presence could help, he said noting that Icahn's board
members have historically been able to boost a company's share
"Our record of going on boards is phenomenal," Icahn said in
a television interview with CNBC.
As part of a revision to an agreement struck in February
last year, Icahn Enterprises employees Hunter Gary and
Jesse Lynn, along with James Nelson, an independent director of
Icahn Enterprises, would be put up for election to the board.
Gary is a senior vice president of Icahn Enterprises, while
Lynn is assistant general counsel. Nelson has been on the Icahn
board since June 2001.
Gary and Lynn would replace board members Carole Black and
Michael Levitt whose terms are expiring. Nelson will replace
Colombe Nichols who is resigning from the board.
Herbalife had postponed its annual shareholders meeting to
April 29 from April 24 while it talked with Icahn about an
increase in board representation.
Icahn nominees Jonathan Christodoro and Keith Cozza have
been on the Herbalife board for about a year.
"We remain resolute in our commitment to the long term
success of Herbalife," Icahn said in a statement.
A spokesman for Pershing Square declined to comment on
Icahn will continue to have the right to buy up to 25
percent of Herbalife, Herbalife said. He declined to say on
Monday whether he might be planning to buy more shares.
Herbalife shares closed up at $52.86 on the New York Stock
Exchange on Monday. They had risen nearly 9 percent in regular
trading on Monday.
NU Skin shares closed up 18.2 percent at $88.66, while those
of USANA closed up 9.4 percent at $72.97.
(Additional reporting by Maria Ajit Thomas and Mridhula
Raghavan in Bangalore; Editing by Savio D'Souza, Ted Kerr and