Just when you thought things couldn’t get worse than yesterday’s “sunscreen” press release (this piece of dung), which was bizarre in and of itself, Herbalife has once again outdone itself with a press release that insults the intelligence of any investor that knows 4% of how the public markets work.
Look at this lovely headline: “Herbalife Chairman and CEO Increases His Personal Share Holding in the Company”
Wow! Very impressive, right? Herbalife jumped after hours to up almost 3% – this is a huge headline for the company, right?
Even my buddies over at CNBC pumped out this headline exactly the way the company wanted them to. And listen, I love everybody at CNBC, especially Dom Chu, Herb, Dan Nathan, Pete and Judge. But the way Dom reported this was exactly how the company would have wanted, with the company line dragging in tow below him and a picture of the stock moving up next to him:
No big deal, Dom – everybody was confused at first when the headline dropped, myself included. All I saw was a Form 4 for exercised options and a sale of $13M in stock. “That’s an interesting way to increase personal shares,” I thought to myself. Dom later got the story corrected on his Twitter (follow him here, by the way – he provides great coverage via Twitter).
But with regards to this sale, a more appropriate headline could have been:
“Herbalife CEO Spends $0 Out of Pocket, and Even Backs Out Tax Liability, to Use a Cashless Exercise of Options that Were Set to Expire in Days Anyway, that the Board Likely Told Him Not to Sell”
The PR spin on this should be appalling to anyone with half a brain. The truth of the matter is:
1. He had to cash these out, they were due to expire.
2. He put up $0 of personal cash for this transaction – even while his minions Walsh, DeSimone, et. al have mustered up five or six figures to make token buys.
3. He took out absolutely EVERYTHING he could from these options without selling them.
4. The Board likely told him that the had no choice but to not sell these shares when exercised.
5. Johnson has CASHED OUT more than $150 million in Herbalife stock & $15M this year.
The appalling thing isn’t the transaction itself – he had to make a move, it was a “now or never” situation, so I won’t fault him for that. But, delivering it as a PR in this fashion is absolutely absurd and speaks to the kind of circus this company is.
As someone who formerly worked in corporate communications, we would have had the thought process to realize the backlash that could come from doing something like this. If I was HLF’s PR manager, I would have said no to the headline and just had our securities lawyer file the necessary Form 4. It’s not good news – it’s meaningless – and it doesn’t deserve the BS headline it got.
As SA Contribuor “Fear and Greed” said in response to this:
There are many ways this COULD have been done, in order of “confidence” in the company:
1) Pay $5.8M to purchase the shares and $13.4M in cash for taxes to own 750,000 shares. Total outlay: $19.2M or $25.62 per share. (38% discount to MV)
2) Pay 0 to purchase the shares and $13.4M in cash for taxes to own 611,574 shares. Total outlay: $13.4M or $21.91 per share (48% discount to MV)
3) Pay $5.8M to purchase the shares and 0 in taxes to own 430,880 shares. Total outlay $5.8M or $13.49 per share (69% discount to MV)
4) What Mike did: Pay 0 to purchase the shares and 0 in taxes to own 292,454 shares. Total outlay, 0 or $0.00 per share (100% discount to MV)
Which seems like the option that reflects the highest level of “confidence” in the shares of Herbalife?
Should be obvious. CEO Mike took door #4 which commits the least amount of his capital for the fewest number of shares he could have owned. The cowards way out.
Oh – lets not forget that CEO Mike sold his shares back to Herbalife – so they could pay taxes for him… The company SHELLS OUT $13.4 million in CEO Mike’s deal to the government.
A vote of confidence in the company would have been some kind of stock transaction that took Mr. Johnson’s money OUT OF POCKET (or his Swiss bank accounts) and invested it in the company. This did no such thing. Mr. Johnson did the absolute minimum he could do in this situation for his company, and tried to have his PR team spin it. Don’t be fooled.