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Boies, Kirkland Battle Over Viability of Herbalife

By Brian Baxter Contact All Articles 

The Am Law Daily

January 9, 2013

An escalating battle of hedge fund titans over whether nutritional and vitamin supplements company Herbalife is a legitimate business or a scam has so far pulled in Am Law 100 firms Boies, Schiller & Flexner and Kirkland & Ellis.

The dispute kicked off in earnest in late December, when Los Angeles–based Herbalife retained Boies Schiller amid an offensive against hedge fund magnate William Ackman of Pershing Square Capital Management after he publicly announced a $1 billion bet against a company he claims is nothing more than a pyramid scheme. Ackman said it was his "patriotic" duty to take down Herbalife and its CEO, Michael Johnson, whose nearly $90 million in 2011 compensation made him the country's highest-paid corporate executive that year.

Ackman's attack echoed the finding of a commercial court in Belgium, which in late 2011 labeled Herbalife an illegal pyramid scheme. The company—which had nearly $3.5 billion in total revenue in 2011—is appealing the Belgian decision, which it claims is based on factual errors. Johnson himself is pushing back against Ackman's assertions aggressively, with a team of top executives and advisers aiding him in that effort. 

Leading the charge on behalf of Johnson and Herbalife is legendary litigator David Boies, who is representing the embattled company along with a team of lawyers at the firm he founded in 1997 after leaving Cravath, Swaine & Moore. Other Boies Schiller attorneys working on the matter include fellow name partner Jonathan Schiller, as well as litigation partners William Ohlemeyer, Jonathan Sherman, Courtney Rockett, David Zifkin, and Jeremy Vest. (Brett Chapman, a former Skadden, Arps, Slate, Meagher & Flom associate, has served as Herbalife's general counsel and corporate secretary since 2003.)

Herbalife got some additional help this week when Ackman's hedge fund rival, Daniel Loeb, a founder of New York–based Third Point, countered Pershing Square by buying an 8.2 percent stake in the company.

Loeb, who explained his bet on Herbalife in a letter to investors this week, is the son of former Irell & Manella tax partner Ronald Loeb, who retired from the firm in 1997 and two years later became general counsel for longtime consumer retail client Williams-Sonoma. (Ron Loeb, who also served as an outside director at top toymaker Mattel, died last year at 79.)

The identities of the legal advisers providing counsel to Loeb and Third Point were not immediately available on Wednesday. Josh Targoff, chief operating officer and general counsel for Third Point, did not respond to a request for comment on the matter.

Willkie Farr & Gallagher corporate and financial services partner Michael Schwartz, who has advised Third Point on several key transactions in the past, including the hedge fund's investment in struggling Internet company Yahoo (where it successfully sought management changes last year), also did not respond to a request for comment about whether the firm might have a role in the Herbalife fracas. Nor did two Willkie media representatives.

Roy Katzovicz serves as chief legal officer for Pershing Square, which last month created a website called factsaboutherbalife.com to offer its take on the company. Some observers have likened Ackman's attack on Herbalife, which has its defenders, to a battle representing "the hedge fund equivalent of Stalingrad."

Ackman, who could be sued by Herbalife as a result of his accusations against the company, responded Wednesday to the news of Loeb and Third Point's investment. "The outcome of this investment is not about Pershing Square or anyone else who is long or short the stock," he said. "To the extent another investor, long or short, brings additional sunlight to the situation, we welcome them."

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