Herbalife is stepping up lobbying efforts to counter attacks on its business model

September 15, 2013

Herbalife, the Los Angeles-based seller of diet and nutritional supplements, is stepping up lobbying efforts to counter attacks on its business model by billionaire hedge fund manager Bill Ackman.

The contentious battle between Ackman and Herbalife went public last year, when the billionaire shorted 20 million shares of the company’s stock — betting on its decline — and accused Herbalife of running a pyramid scheme.

The company has steadfastedly denied any impropriety, and billionaire investorCarl Icahn has stepped in, defending Herbalife and buying 16.5 percent of the company’s outstanding shares — a move that he said last month has made him $500 million when the stock rose.

Since then, calls have been made by consumer and Hispanic groups to have the Federal Trade Commission investigate Herbalife’s business practices and whether they hurt the company’s network of mostly Hispanic distributors.

In the latest twist, Herbalife has added the help of the firm run by power broker Tony Podesta to its roster of star lobbyists that already includes Moses Mercado and Dean Aguillen of Ogilvy Government Relations, and Thomas Downey and Ray McGrath of Downey McGrath Group. They are largely playing defense against the lobbying and public relations offensive launched by Ackman’s Pershing Square Capital Management — which has hired lobby firms Wexler & Walker and Moffett Group, in addition to its longtime PR agency Global Strategy Group.

“We’re meeting with a number of people on the Hill who we happen to know that Pershing Square’s lobbyists are meeting with,” said Diane Turpin, Herbalife’s vice president of government and industry affairs. “We’re mainly talking to members of Congress about the company, our business model, our products and the people who consume and sell the products.”

Turpin compared the Herbalife’s structure to that of Avon and Mary Kay. Herbalife, founded in 1980, sells its products exclusively through independent distributors — more than half of whom in the United States are Latino — who buy Herbalife products and sell them to customers and other distributors they’ve recruited.

Nearly 48 percent of distributors who reached the level of supervisor earned between $1 and $1,000 in 2012, averaging $292 in gross payments from their work with Herbalife. Critics argue that this an example of targeting low-income minorities, but Mercado said many distributors sell Herbalife to supplement their earnings, rather than using it as their primary source of income.

Mercado likens the efforts by his firm and other Herbalife advocates to an “educational campaign” that includes meeting with members of the Congressional Hispanic Caucus over the summer and inviting lawmakers to visit Herbalife distributions centers in their districts.

“There’s been so much misinformation on Capitol Hill,” he said. “A lot of people, especially Pershing Capital, has put out a lot of misinformation ... in the absence of information, people make their own assumptions.”

Herbalife has spent $172,000 on lobbying so far this year — $160,000 to outside firms and $560,000 on in-house lobbying, and recently hired former Los Angeles mayor Antonio Villaraigosa as a senior adviser.

Catherine Ho covers law and lobbying for the Capital Business section of The Washington Post. She previously worked at the LA Daily Journal, the Los Angeles Times, the Detroit Free Press, the Wichita Eagle and the San Mateo County Times.
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