John Desimone, CEO of Herbalife Ltd. (NYSE:HLF), spoke with Bloomberg Television’s Stephanie Ruhle today and responded to Pershing Square CEO Bill Ackman’s investigation and accusations against Herbalife.
When asked whether Herbalife Ltd. (NYSE:HLF) would sue Ackman, Desimone said: “We may. That’s on the table. It’s an option. I think our case gets stronger every day.”
Desimone also said: “I think the rules of transparency that we operate under is not the same set of rules that Bill Ackman operates under and it’s a little bit frustrating. He’s spent $50 million. By the way, two months – three months ago it was $20 million. So I don’t know if the $20 million was wrong or the $50 million was wrong. But what I do know is the $50 million that he spent both in today’s presentation and in prior presentations actually proves our thesis and disproves his thesis.”
Herbalife CFO: We May Sue Ackman
Herbalife CFO on Ackman: Big Bark, Small Bite
STEPHANIE RUHLE: What a day you’ve just had. Last night when you found out your earlier interview today was going to be aired at Bill Ackman’s presentation, a guy who has been on a crusade against you for two years, how did you feel?
JOHN DESIMONE: When he moved it up?
DESIMONE: I felt it was a sign of weakness. It actually made me feel better that he was a little bit worried. I didn’t think he had anything anyway and I said that this morning. It’s been a little bit of the same MO now for 18 months. A lot of talk. Big – big bark, small bite. But at the same time, he comes across so certain that you’ve got to wonder where he’s going. So I got a little bit more comfortable when he (inaudible).
RUHLE: Well as you said, management in the company has been divided into teams, and a lion’s share of your time is spent dealing with, defending against Bill’s accusations. This isn’t what you signed on to do when you joined Herbalife Ltd. (NYSE:HLF). What do you think of what your job is?
DESIMONE: It’s fascinating and it’s frustrating. I – so I know the issues, so I think I am the right – right individual, along with a couple other people, to help fight back and get the truth out. It’s been fascinating because I’ve got some of the smartest people on Wall Street who now invest in the company. And that’s been a tremendous benefit for Herbalife and for me, and I’m a better CFO today because of it.
At the same time, it’s frustrating because I think the rules of transparency that we operate under is not the same set of rules that Bill Ackman operates under and it’s a little bit frustrating. He’s spent $50 million. By the way, two months – three months ago it was $20 million. So I don’t know if the $20 million was wrong or the $50 million was wrong. But what I do know is the $50 million that he spent both in today’s presentation and in prior presentations actually proves our thesis and disproves his thesis.
RUHLE: Then why not sue him? He has been on a crusade, some say a slanderous crusade against you. Why won’t you sue him?
DESIMONE: We may. That’s on the table. It’s an option. I think our case gets stronger every day.
RUHLE: So what stopped you between when this started 18 months ago to today? With everything that he says, why not slap him with a lawsuit?
DESIMONE: Well, we may. I think to date the stock’s performed well. The company’s performed well. But it’s something that we talk about frequently and I’ll leave it to the lawyers, but it’s a possibility.
RUHLE: Well you feel and many feel, the stock market feels like Bill didn’t come up with anything big enough. If you watch those videos, they are heartbreaking. There are some bad things happening at those distribution centers. Do you have an obligation?
DESIMONE: First of all, I don’t believe that to be true, okay? So there’s a lot of misrepresentation. Club CN (ph), which he presented today, actually has a lot of good fundamental business practices. It’s – Club CN means Club 100. The 100 means get 100 people to consume the product, so it trains people to get customers and run a business and learn how to manage finances before they actually open up a club.
RUHLE: How does making 100 shakes, how does taking two scoops into a cup – how is that a needed practice except for just churning selling your products?
DESIMONE: No, no. It’s not making the shakes. It’s running a business. It’s finding customers. You want people to know how to get customers, how to maintain those customers, how to treat those customers before they go open up a fixed location. So it’s actually very beneficial to the model to have that training. So what we did as a company is we incorporated the strength of Club 100 into the Herbalife Ltd. (NYSE:HLF) program, which is why it’s not called Club 100.
RUHLE: So you do control Club 100 though?
DESIMONE: We don’t – Club 100 was not an Herbalife Ltd. (NYSE:HLF)-identified strategy. Our members are independent. And the best ideas —
RUHLE: Right there, doesn’t it seem kind of cockamamie to you? This is an identified strategy. Wal-Mart has a store. There’s the salespeople. They sell the product. All this noise, this confusion is what makes people uncomfortable. An identified strategy. I don’t even know what that means.
DESIMONE: Well, company has a strategy. We have – we sell through independent distributors, no different than Avon, no different than Tupperware, Pampered Chef. Within those independent sales forces, people go to market differently and they find the best way to bring the product to their community. And when those ideas are grounded in fundamentally solid business practices, we try to adopt them. And that’s what Club CN was. It had some really good fundamental business practices and we adopted some of those.
RUHLE: And what percentage of those sales are to ultimate end users? I mean customers that are not in turn salespeople themselves.
DESIMONE: End users are people that buy the product because they want the product, right? And they fall into three classifications, okay? Some of them outside the network. Some of them are inside the network. We just released a report this morning. I’m sure you’ve seen it. It was done by a former FTC economist, Dr. Vandale (ph). He determined through his analysis of our records and of research, research that had been done by third parties and research that he contributed to, that 97 percent of our sales end up in the hands of ultimate end users.
RUHLE: Why not break your sales numbers down then? Why can’t we see them?
DESIMONE: Well we did. We broke it down today. If you read the report, it’s broken down into its categories. Ninety-seven percent of the sales go to end users, 80 percent of the sales go to end users that are outside the network or that primarily join because they just want the product.
RUHLE: But if you can’t control how the distribution centers are working, if you