Jana’s Rosenstein Joins Ubben Saying Herbalife No Pyramid Scheme

Apr 29, 2014 9:18 pm ET

April 29 (Bloomberg) -- Herbalife Ltd., the company that hedge-fund manager Bill Ackman has for 16 months called a pyramid scheme, is a legitimate enterprise, two activist investors said.

Barry Rosenstein, the founder of Jana Partners LLC, and Jeff Ubben, the chief executive officer of ValueAct Capital Partners LP, said today they don’t believe the seller of vitamins and weight-loss shakes is a pyramid scheme. The executives made the comments in response to a question at the Milken Institute Global Conference in Beverly Hills, California.

Herbalife, which is run from Los Angeles, is under scrutiny by U.S. regulators and law enforcement, which are investigating the claims that the business is run as a scheme. The probes were spurred by criticism from Ackman, who has waged a battle to shut the company down since December 2012. He bet $1 billion against Herbalife, saying it misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices.

Herbalife yesterday posted higher-than-projected earnings for the latest quarter and increased its forecast. Still, net income fell 37 percent, hurt by currency devaluation and a drop in sales in Malaysia.

As Herbalife battles Ackman, other companies are giving in too easily to the demands of activist investors, Ubben said at the panel. Rosenstein said he expects smaller activist firms to disappear as the industry follows a similar path that private equity took over the past decades, with large buyout groups growing fastest.

“They’re rolling over a little too easily right now,” Ubben said of companies targeted by activist investors. “Companies might want to push back a little more because there is some bad behavior going on.”