Global Health Suing Herbalife Over Sourcing Contract

LOS ANGELES--Global Health Sciences is facing the end of its ingredient supply contract with Herbalife International Inc., and apparently isn't pleased with the situation. Earlier this week, it was reported that Global filed a lawsuit on Nov. 9 against Herbalife for breach of contract, citing it was Herbalife's "lifelong supplier" of certain nutritional ingredients. According to the suit, Mark Hughes, the former president and chief executive officer of Herbalife who died unexpectedly in May, made an oral agreement with Global.

According to Herbalife, Global filed the lawsuit when Herbalife decided to use other suppliers to source its ingredients. The lawsuit alleges that Herbalife failed to continue to source its nutritional ingredients through Global, jeopardizing Global's financial status since Herbalife is the company's biggest client. Global's most recent contract with Herbalife started in 1997 and is due to expire on Dec. 31, 2000. According to a press release issued by Herbalife, "...based upon the uncertainties that have surrounded the relationship with Global for many months, Herbalife ... [is] expected to purchase the substantial majority of its requirements for the first quarter of 2001 from other manufacturers."

"This is a very strange lawsuit," said Conrad Klein, a vice president and chief business affairs officer at Herbalife. He added that when Herbalife began its relationship with Global, it supplied good products but with prices that were a little high. "If they continued to give us good product, at competitive pricing, they [could have expected] a substantial portion of our business in the indefinite future. [Global's] attitude now is `all or nothing.'"

According to Herbalife, the company's growth was the main reason behind its sourcing decision. Klein said that when Herbalife and Global's partnership began in 1980, not only was Global its only supplier, but Herbalife was in Los Angeles and Global was in Orange County. "They're still in Orange County, and we're in 50 countries," Klein said, adding that Global has known for years that Herbalife was actively seeking secondary, and hopefully primary, sources.

Global is seeking monetary damages, as well as an injunction that requires Herbalife to buy its ingredients. In light of the lawsuit, Herbalife stated that it is extremely unlikely for Herbalife to purchase any product from Global after the contract expires.

As of Dec. 22, Global could not be reached for comment. For additional information, visit www.herbalife.com.