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May.20
6:42 PM ET
Tuesday, 20 May 2008
What To Do About Herbalife

As an investor, what do you do when you’ve got a company delivering great numbers quarter after quarter that’s also constantly bogged down in controversy?

That’s the situation with Herbalife [HLF  Loading...      ()   ], the nutritional supplement maker that’s perhaps best known for its controversial multi-level marketing business model.

The problems reached a crescendo when the company’s COO resigned after it was revealed that he lied on his resume. Then the Fraud Discovery Institute alleged that Herbalife products should contain a warning about lead content. And now Spain’s ministry of health is citing cases of hepatic toxicity that it says could be associated with Herbalife products.

But CEO Michael Johnson came to Mad Money on Tuesday to specifically refute those claims. The lead matter is a “non issue,” he said, as many products contain safe amounts of the element. And Spain’s concerns with hepatic toxicity trace back to years-old cases of people possibly being allergic to ingredients in Herbalife products.

To that end, Johnson said that his company’s products are “incredibly safe,” so much so that he and his own children use them daily. No Herbalife product or ingredient has ever been pulled from any market in the world, he said.

The stock has been on a roller coaster over the past year as investors weigh the legitimacy of the various claims against the company, as well as continued apprehension over its direct-sales marketing technique, even as the company itself continues to deliver results for shareholders. With all the controversy presumably hurting Johnson and his team’s ability to run a business, Cramer posed the obvious question: Why not just go private?

While Johnson said that he’s always willing to weigh the available options, he and the board are focused on the best thing to do for the company’s shareholders.

Cramer, however, is not so sure. While he likes the story, the stock may have gotten a little too hot to handle, even if the controversies turn out to be overstated.


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