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Boies, Kirkland Battle Over Viability of Herbalife
The Am Law Daily
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 Angelesbased 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 companywhich had nearly $3.5 billion in total revenue in 2011is 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 Yorkbased 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."
One of several firms advising Ackman and Pershing Square in connection with Herbalife is Kirkland & Ellis, which is fielding a team led by M&A partner Stephen Fraidin in New York and litigation partner Thomas Clare in Washington, D.C.
Fraidin has previously advised New Yorkbased Pershing Square on several high-profile endeavors, including its ultimately unsuccessful 2009 effort to get a slate of five candidates elected to the board of Targeta company in which Ackman holds a 10 percent stakeand its investment in retail rival J.C. Penney the following year.
Kirkland also advised San Franciscobased private equity firm Golden Gate Capital in 2002 when it teamed up with Stamford-based Whitney & Co. to take Herbalife private in a $685 million deal. Chadbourne & Parke advised Whitney on the acquisition, while Gibson, Dunn & Crutcher took the lead for Herbalife on the sale, according to sibling publication the New York Law Journal.
The going-private sale resulted in severance packages for Herbalife's in-house legal department, including former associate general counsel Susan Rule Sandler, according to a report at the time by sibling publication Corporate Counsel. Sandlerwho prior to joining Herbalife spent a decade as a partner at Morrison & Foersterwent on to become the top in-house lawyer for the Forest Lawn Memorial Park private cemetery in Glendale, California, according to sibling publication The Recorder.
Herbalife's private equity owners cashed out of their investment in late 2004 when the company raised $345 million through an initial public offering. Gibson Dunn and offshore firm Maples and Calder advised Herbalife, while Skadden represented underwriters on the listing. An SEC filing by Herbalife at the time showed that the IPO generated nearly $1.5 million in legal fees and expenses.
Founded in 1980, Herbalife has served as a veritable fountain of work for a variety of firms over the years. Among the legal entanglements: a nasty estate battle sparked by the 2000 death of company founder Mark Hughes from an accidental overdose of alcohol and antidepressants. The executor of Hughes's estate also sued infamous Hollywood investigator Anthony Pellicano in 2007a year before the disgraced private detective was convicted on federal racketeering charges.
Herbalife was also caught up in litigation a decade ago over the sale of dietary supplements and other products containing ephedra, a stimulant banned by the Food and Drug Administration in late 2003. It wouldn't be the last regulatory headache for Herbalife.
The New York Times reported late Wednesday that the SEC had opened an investigation into the company.