Dismantling Herbalife's Bizarre New PR Effort

| About: Herbalife Ltd. (HLF)
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Herbalife has set up a new Twitter account, @HerbalifeTRUTH, and paid to promote its Tweets to continue trying to give the appearance of legitimacy to the company.

When whomever is operating the account isn't posting half truths and obfuscations, they're using it for ad hominem attacks again Bill Ackman.

Ad hominem attacks are commonly the resort of a company that cannot silence a critic with the facts necessary to exonerate themselves.

Included below are six different examples of rhetoric spewed out by the Herbalife PR machine, paid to find itself at the top of your Twitter feed.

Herbalife can't even seem to get the "good" aspects of its company correct enough to promote them properly and should consider sacking whomever is running their corporate communications.

(Herbalife's 2013 Annual Report, sourced several times, available here)

By now, you've likely noticed that Herbalife (NYSE:HLF) is on a bit of an offensive to try and deflect the claims that it is a pyramid scheme. It's set up a website, iamherbalife.com, and most recently set up its own Twitter account to "defend itself."

The only thing the company hasn't done to defend itself is disclose the amount of product it's selling outside of its distributor network. That's likely for two reasons: 1) the data doesn't exist and 2) if it did exist, it would likely indict Herbalife as a pyramid scheme instead of exonerate them.

How do you feel about penny stock promoters? You know, companies that pay to promote their stock via e-mail and social media?

That's how I feel about Herbalife using a Twitter account - not to advertise its products, but seemingly for the purpose of ad hominem attacks against Mr. Ackman and rhetoric that you will see proves to be sometimes dead wrong, and at other points extremely misleading.

Regardless, I've noted in a past article that the company is paying to have its Twitter account promoted, knowing that the social media company has been a battleground for those to push their ideas forward and spread the truth about Herbalife. You can tell by the little "Promoted by HerbalifeTRUTH" tags littered under the account's posts when they show up at the top of your Twitter feed after searching for "$HLF".

With just 1,629 followers after establishing itself weeks ago, it doesn't seem that too many people are interested in Herbalife's "truth." Maybe the company could make following this Twitter account a necessary step in becoming a distributor?

Or, maybe people don't feel the need to "follow" it because the way Herbalife is paying for promotion, the thing pops up on your news feed front and center every day anyway. I'm being force fed grade A bologna, directly from the minds of whoever is working corporate communications at Herbalife corporate, so forgive me if I felt the need to pen "yet another" Herbalife article about it.

However, reviewing Herbalife's Twitter feed, I came across some interesting statements that I thought I would debunk, as a favor to society, regulators, and distributors and longs that still have yet to "see the light."

When the account was first set up, I thought it was going to be solely created to attack Mr. Ackman:

Now, I see that it's set up for misinformation, as well.

As Herbalife's Twitter is showing, there's a million different ways to obfuscate; here are six of the company's efforts, with my commentary:

#1 - Dr. Richard Carmona and the Illusion of Legitimacy

Dr. Richard Carmona is one of the many cloaks of legitimacy that the company is using to pretend that it's legitimate. He's like Cristiano Ronaldo, who doesn't know he's endorsing a massive scam, or the LA Galaxy, who wear the pyramid scheme's name across their chest. Maybe Mr. Carmona hasn't done his research. Maybe he likes the payday. Who knows?

But, from a PR standpoint, this is an easy one. Mention the former U.S. Surgeon's General and instantly bolster the "appearance of credibility" for the company.

Carmona currently sits on the Board of Directors. In his first year on the board, Carmona was compensated with $128,484 in cash.

- source Herbalife's 2013 proxy)

Additionally, he's already been granted 2,263 shares in options, with a strike of $79 and change - expiration date 2020. At current prices, these share would be worth about another $130k.

I doubt Mr. Carmona will get to exercise his options, but it's not a bad take for your first year being on the board.

It's no wonder Mr. Carmona has nice things to say about Herbalife.

And additionally, his name should lend an air of "healthy" credibility to the company - living a healthy lifestyle and...

Never mind.

Mr. Carmona also sits on the Board of e-cigarette company, NJOY.

#2 - 37% of Herbalife U.S. Employees are Latino

How could Herbalife be harming millions of Latinos, when a massive 37% of the company's U.S. employees are Latino?

According to Herbalife's 2013 10-K filing, the company had 1,700 U.S. employees.

As Matt Stewart would say, "solving for X" we find out that Herbalife is employing somewhere around 630 Latinos.

Now, look at where the Latino and Hispanic population are in the U.S. compared to where Herbalife's U.S. headquarters is:

If anything, the company should be employing more Latinos!

But, while we're manipulating numbers, that 630 is 0.063% of the one million distributors that continue to churn at the bottom of the pyramid. (It's actually 3 million at the bottom, but I'm feeling generous today).

So, while Herbalife fleeces millions of Latinos through fake employment as distributors, don't forget - it legitimately employs 630 of them.

But, that leads me to ask, why 630?

Why not zero?

Why are they working for "rank and file" wages when one person on the Board of their company once promised the possibility of $10,000/month in wages? No, wait - that's now $100,000/month in wages!

Why does anyone even answer the phone when I call headquarters?

This is like a company selling treasure maps to real gold mines that are free for the taking! How long do the employees sit there and sell the maps before they realize they could be in the mine?

And if they do have 630 people employed, does this give them any kind of legitimate point? They're trying to prove that there's no "Latino on Latino" crime going on? Don't Latino gangs in LA prey on other Latino gangs?

Additionally, why wouldn't there be a bunch of Latinos working there if Herbalife preys on them? Do the Latino employees not subscribe to the same targeted soccer advertisements and endorsers that Herbalife puts out for its distributors? Don't Latinos know Latinos best?

Isn't that the same reason some ski manufacturers likely employ Canadians?

Dominos Pizza targets people who like pizza, surprised? You may find it shocking, but a larger percentage of its staff is also likely to like pizza as well.

Apple employees like Apple products.

Covergirl makeup likely attracts female workers that like its makeup.

Alright, you get the point. Just saying, you probably don't see a lot of people from Death Valley signing up to work for Jetski.

Alright, alright, now you get the point.

#3 - Herbalife is an "American Made" Company

Ah, off the Latino damage control and onto the U.S. damage control. Remember those veterans in Ackman's documentary last week? This tweet is for them!

Herbalife - a name synonymous with apple pie, baseball, and American tradition. Come on, you remember Herbalife, the good ole' U.S. of A company that's headquartered right here in the good ole'...


Never mind.

#4 - Herbalife Makes Entrepreneurs. That Aren't Required to Purchase Anything. That Can Still Make Money. Even Though They Don't Want To.

Get a load of these three gems.

Read them close before I dismantle them:

Anyone seeing the problem here?

Well, aside from the fact that it's wrong - you do need to make supervisor status to monetize the business opportunity (read: recruiting distributors) - the three of these statements all contradict one another.

Herbalife offers you a chance to be an entrepreneur - but according to Des Walsh's appearance on ABC Nightline, distributors are only signing up for a "couple hundred dollars" of extra income.

Herbalife offers you a chance to be an entrepreneur - but according to their new website, people just want the discounted product.

But, let's ignore that.

Say you're one of the 27% that want to be an ENTREPRENEUR by being an Herbalife distributor. An "entrepreneur" is defined as:

- source Google)

So, you're saying you do have to take a financial risk to be a distributor?

But you're not required to purchase anything?

But you can still be an entrepreneur?

Something has to give here - not all of these can be true, and I'm not even sure Herbalife knows which is true and which isn't nowadays.

#5 - Herbalife is an R&D Monster

That's a ton of money. Color me impressed. Just to follow up about what Herbalife thinks about that $44 million and where it went, let's see what the company had to say about this in its 2012 Annual Report:

Hmm, "not material," that's pesky. So, it means a ton, but at the same time it means nothing material?

Again, that's a massive figure, but why did the company choose to use its 2012 figure when it was Twittering months after its 2013 Annual Report was posted?

It's probably nothing, but just in case, let's look at 2013's R&D spending:

That's probably just an aberration. What about 2011?

- source)

Oh. Never mind. Again.

#6 - Herbalife Doesn't Need the U.S.

Did we say we're a good ole' U.S.A. based company just days ago? We meant, "The U.S. - who needs them? We're global!"

This post reeks of "don't worry if the FTC shuts us down in the U.S., because we're global!"

We've been hearing this argument since the FTC was first mentioned with regards to Herbalife. The company seems to already be preparing for the worst in its "kind of home country."

Fundamentally, this boils down to a question of whether or not you think the U.S. FTC shutting down Herbalife would do well to set a precedent across the globe of other countries doing the same. I do.

Hey Herbalife - do you mean to tell me that if the FTC shuts down your company in the states that other countries aren't likely to do the same?


I think these examples do well to show the nature of the obfuscation that Herbalife is creating. The company has absolutely every answer, except for the one that matters:

Show us how much of your sales are going out of network.

They just can't do it. They can manufacture everything else except the meat and potatoes of what's needed to exonerate them.

Herbalife seems to just be kicking and flailing as it moves one day closer to its fate.

Additionally, I'm having a tough time locating another public company that seems it's necessary to disclose on its company website FAQ that it isn't a cult. Hilarious.

The only thing missing from that question is a picture of an Herbalife "Extravaganza" and its participants - like this:

I continue to contend that Herbalife is a global confidence game, bilking unknowing people out of their money under the guise of a health food business opportunity. I remain steadfastly short and bearish on the company and insist the risk of total loss remains real.

For my piece debunking Herbalife's website, iamherbalife.com, you can read my article "Reality Checking Herbalife's New Website" posted here.

Disclosure: I am short HLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.