Changes at the Herbalife board | FT Alphaville

Changes at the Herbalife board

Carl Icahn, the largest shareholder in Herbalife with a 16.8 per cent stake, will soon have five seats around the boardroom table, according to the company:

Herbalife will nominate three designees of the Icahn Parties, Hunter C. Gary, Jesse A. Lynn and James L. Nelson, for election to Herbalife’s board of directors at its 2014 Annual General Meeting of Shareholders, currently scheduled for April 29, 2014 (“the Annual Meeting”).

Messrs. Gary and Lynn are employees of Icahn Enterprises L.P., and will be nominated for election to the Class I directorships currently held by Carole Black and Michael Levitt, whose three-year terms end at the Annual Meeting.

Colombe M. Nicholas intends to resign from Herbalife’s board, and Mr. Nelson, who is an independent director of Icahn Enterprises L.P., will be nominated for election to serve the remainder of the term of Ms. Nicholas’ Class II directorship. These three nominations are in addition to the two representatives of the Icahn Parties currently on the board. The size of the board will remain at thirteen directors.

Michael Levitt, the lead independent director, and Carole Black, another independent are off at the end of their three year terms (the company has a staggered board so not every director is up for reelection at once, something Mr Icahn might want to address with his activist investor hat on).

The tale we had heard last week was that rumours about Mr Levitt’s continued status on the board circulated on trading desks on Monday, as shares in the multi-level marketing group fell 8 per cent. Mr Levitt did not respond to our invitations to discuss the company or his intentions.

The departures come at a difficult time for Herbalife, following the disclosure that the company is under investigation by the Federal Trade Commission — an investigation the company has said it welcomes in order to correct misinformation in the marketplace, and with which it intends to cooperate fully.

Mr Levitt is a Vice Chairman at Apollo, which bought his CLO shop Stone Tower Capital in 2011. Ms Black is the former President and Chief Executive Officer of Lifetime Entertainment Service, a media and marketing expert with a CV that includes experience at Disney and Time Warner. Ms Nicolas is an executive with experience in fashion and branding who previously ran companies such as Giorgio Armani.

After those rumors had circulated last week Bill Ackman penned an open letter to members of the board to make mischief remind them of their liabilities under Cayman Island law, where the company is incorporated.

We are writing to suggest that you consider the propriety of any share repurchases in light of contingent exposures that could undermine Herbalife’s solvency, particularly because under Cayman law each of you may become subject to massive personal liability if you are found to have gone over the line…

As you know, we believe Herbalife will eventually be found to be an illegal pyramid scheme and will be shut down (in which case the company will no longer be able to pay its debts as they come due). If that were to happen, a court with the benefit of hindsight may well conclude that your belief in the solvency of the company when it repurchased its own shares was not reasonable (especially given your access to all the facts). In that case, the court, acting for the benefit of victims of the scheme and other creditors, could require you to make the company whole out of your own pockets for the cash wrongly used in share repurchases.

Although we don’t think Bill really expects a director of the company to throw up their hands up and admit he was right all along. The company has said many times that it is legitimate.

But according to Bloomberg Pershing Square is almost back to break even on its $1bn short campaign, so maybe Akman is just enjoying the chance to put the focus back onto the company.