Herbalife (HLF) confirms settlement with the FTC

• FTC has deemed it is not a pyramid scheme. Co agrees to adjust some of its business practices and co's board to allow Carl Icahn to acquire up to 34.99% of outstanding shares.
• Herbalife also agreed to make a $200 million payment to the FTC as part of the settlement.

Herbalife confirms settlement with the FTC, says the agreement does not change its business model as a direct selling company; agrees to make $200 mln payment; Board moves to allow Carl Icahn to acquire up to 34.99% of outstanding common shares:

The co confirms it has reached a settlement agreement with the Federal Trade Commission resolving the FTC's multi-year investigation of the Company. The terms of the settlement do not change Herbalife's business model as a direct selling company and set new standards for the industry. With the settlement agreement announced today, the FTC's investigation of Herbalife is complete.

• Herbalife and the Illinois Attorney General also reached a settlement, and the Company agreed to pay $3 million as part of this separate agreement. With the conclusion of the Illinois investigation, the Company is not aware of any active investigations by any other state attorney general.
• The Board unanimously approved the settlements and voluntarily established an Oversight Committee of the Board that will ensure full compliance with the terms of the agreement.
• The terms of the settlement apply only to the Company's sales in the U.S., which comprise approximately 20% of total net sales. As part of the settlement, the Company agreed to new procedures and enhancements to some policies that already exist. Many of the terms agreed to were either already being contemplated by the Company or are extensions of practices already in place and will be implemented over the next 10 months. The two primary components of the agreement are:
  • Those who currently have a membership with Herbalife, and those coming into the business, will be categorized as either a preferred member (those who become a preferred member to purchase products at a discount) or distributor (those who choose to build a business and sell products through direct sales). This will allow Herbalife to better track both groups and provide a personalized experience for these individuals.
  • Distributors will be compensated based upon retail sales and will provide receipts for their transactions. Their compensation will also be based on purchase for personal consumption within allowable limits. Herbalife's independent distributors are currently required to keep sales transaction receipts. With advancements in mobile technology, tracking retail sales is now even easier, and the Company has already developed proprietary technological solutions including a mobile application in the U.S. to make the process as efficient and easy as possible.
• Other terms agreed to include enhancing training provided to distributors; requiring a business plan and a one-year waiting period before opening a nutrition club; extending the amount of time a distributor may return an initial membership pack; paying for all shipping costs associated with any returned products; prohibiting auto-shipment of products; auditing by an independent third party; and extending the protections on income claims including greater specificity around lifestyle claims.