Herbalife in Talks to Possibly Resolve FTC Probe

Two years after it disclosed receiving a civil investigative demand from FTC, Herbalife Ltd. said it was in talks with the agency to potentially resolve the government probe.

During a Feb. 24 investor call reviewing the company’s fourth-quarter results, Herbalife CEO Michael Johnson referenced the disclosure that was made in a regulatory filing.

“The company is currently in discussions with the FTC regarding a potential resolution of these matters," Herbalife said in the filing.

Wall Street analysts were encouraged by the news, although they noted Herbalife hasn’t specified a timeframe for resolving the matter.

“No indication was given about the timing of a resolution or the possible outcome, though management reiterated that no action at all by the FTC remains one of many possibilities," wrote Barclays’ analyst Meredith Adler in a Feb. 26 equity research report. “Still, there can’t be a resolution without a negotiation, so this news clearly reflects progress."

The outcome of FTC’s investigation could vary widely, cautioned Herbalife, the global multilevel marketer of weight-loss shakes and nutritional products.

“The possible range of outcomes include the filing by the FTC of a contested civil complaint, further discussions leading to a settlement which could include a monetary payment and other relief or the closure of these matters without action," Herbalife noted in the regulatory filing. “The company is cooperating with the investigation, and at this time, it is difficult to predict the timing, and the likely outcome, of these matters."

Frank Dorman, an FTC spokesman, declined to comment.

In a Feb. 26 research report, equity analyst Michael Swartz of SunTrust Robinson Humphrey said the potential for a settlement was “intriguing."

“Obviously, there are many uncertainties around the magnitude of any relief/payment and if a settlement could even materialize in the next 12 months," conceded Swartz. “[H]owever, we are pleased to hear that HLF [Herbalife] is making some progress towards closure of this multiyear distraction/overhang on the stock."

Herbalife’s business model has been the subject of government investigations in recent years. In December 2012, hedge fund manager Bill Ackman of Pershing Square Capital Management accused the company of operating a massive pyramid scheme and bet US$1 billion against the stock. Herbalife, which reported a 2015 profit of $339 million on $4.5 billion in net sales, has consistently denied the allegations.