Herbalife's Ousted CEO Likely to Be Replaced From Deep Bench

(Bloomberg) -- Herbalife Nutrition Ltd., the company still operating under federal oversight, said Chief Executive Officer Rich Goudis resigned for comments he made before taking the top job that go against company policy.

Goudis, who became CEO in June 2017 after a long stint at the company, will be replaced on an interim basis by Chairman Michael Johnson, who had also served as CEO prior to Goudis. The board expects a permanent replacement to come from the company’s current leadership team, and Pivotal Research Group analyst Timothy Ramey says it’s likely that one of its two co-presidents will get the job.

The reasons given for the resignation were vague, with Herbalife saying that Goudis made comments, which recently came to light, that were “contrary” to its “expense-related policies and business practices.” The comments, which “do not reflect the company’s culture,” were made prior to him taking over as CEO, and his departure “is not due to any issues regarding the company’s financial reporting.”

Goudis couldn’t be reached for comment.

Past Probe

The dismissal comes after Herbalife spent years fighting off short sellers and endured a probe by the Federal Trade Commission tied to allegations that it’s a pyramid scheme. That investigation ended with a settlement and the company -- which sells weight-loss shakes and other items through millions of independent sellers -- having to meet new guidelines set by the regulator.

Herbalife is also being investigated by the U.S. Securities and Exchange Commission and Justice Department for alleged corruption in China. The probe, disclosed in January 2017, is focused on entertainment and gift expenditures. The company is conducting its own interval review that has already resulted in firing employees in China, according to a filing.

Goudis joined the company in 2004 as chief financial officer and had also served as chief operating officer before becoming CEO.

The company’s shares gained as much as 1.9 percent on Wednesday.

Pivotal’s Ramey, who rates the shares a buy, said in a note that he believes Herbalife’s next CEO will be either John DeSimone or John Agwunobi, with DeSimone being the more likely of the two. He said he is “certain that the company remains in exceptionally strong hands.”

Smooth Transition

“CEO transitions are seldom smooth; however, continuity should not be an issue” at Herbalife given the interim CEO ran the company previously and “the new CEO is expected to come from company’s strong/long tenured bench,” Jefferies’ Akshay Jagdale, who also has a buy rating on the stock, said in a note.

Still, while Ramey said he’s confident that the board “acted reasonably,” he was “shocked and saddened” to learn of the departure. Goudis, who he called a “friend to this analyst,” drove innovation and new product development at the company and was the “force behind the accelerated pace and transition of the business to a faster, more responsive more growthy business model.”

Goudis won’t go home empty handed. The company will pay him $3.5 million, dependent on compliance with the payment’s requirements, which include not making negative comments about the company or suing it.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net;Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Lisa Wolfson, Jonathan Roeder

©2019 Bloomberg L.P.