MARK HUGHES is a master of the fine art of survival. His Los Angeles-based Herbalife International Inc. is a pyramid outfit that peddles weight-loss and nutrition concoctions of dubious value. Bad publicity and regulatory crackdowns hurt his U.S. business in the late 1980s. But Hughes, 41, continues to enjoy a luxurious lifestyle in a $20 million Beverly Hills mansion. He has been sharing the pad and a yacht with his third wife, a former Miss Petite U.S.A. He can finance this lavish lifestyle just on his salary and bonus, which last year came to $7.3 million.
He survived his troubles in the U.S. by moving overseas, where regulators are less zealous and consumers even more naive, at least initially. Today 77% of Herbalife retail sales derive from overseas. Its new prowling grounds: Asia and Russia. Last year Herbalife’s net earnings doubled, to $45 million, on net sales of $632 million. Based on Herbalife’s Nasdaq-traded stock, the company has a market capitalization of $790 million, making Hughes 58% worth $454 million.
There’s a worm, though, in Hughes apple. Foreigners aren’t stupid. In the end they know when they’ve been had. In France, for instance, retail sales rose to $97 million by 1993 and then plunged to $12 million last year. In Germany sales hit $159 million in 1994 and have since dropped to $54 million.
Perhaps aware that the world may not provide an infinite supply of suckers, Hughes wanted to unload some of his shares. But in March, after Herbalife’s stock collapsed, he put off a plan to dump about a third of his holdings on the public.
Contributing to Hughes’ woes, Herbalife’s chief counsel and legal attack dog, David Addis, quit in January. Before packing up, he reportedly bellowed at Hughes, “I can’t protect you anymore.” Addis, who says he wants to spend more time with his family, chuckles and claims attorney-client privilege.
Trouble on the home front, too. On a recent conference call with distributors, Hughes revealed he’s divorcing his wife, Suzan, whose beaming and perky image adorns much of Herbalife’s literature.
Meanwhile, in a lawsuit that’s been quietly moving through Arizona’s Superior Court, former Herbalife distributor Daniel Fallow of Sandpoint, Idaho charges that Herbalife arbitrarily withholds payment to distributors and marks up its products over seven times the cost of manufacturing. Fallow also claims Hughes wanted to use the Russian mafia to gain entry to that nation’s market.
Fallow himself is no angel, but his lawsuit, which was posted on the Internet, brought out other complaints. Randy Cox of Lewiston, Idaho says Herbalife “destroyed my business” after he and his wife complained to the company that they were being cheated out of their money by higher-ups in the pyramid organization.
Will Hughes survive again? Don’t count on it this time.
- Herbalife Inc is based in:
- Los Angeles
- New York
- Daniel Fallow:
- Was a former attorney for Hughes
- Was a former distributor of Herbalife
- Co-founded Herbalife
- Ran Herbalife’s German unit
- Which of the following countries is mentioned where Hughes operated Herbalife?
- The complaint of Randy Cox of Lewiston, Idaho, against Herbalife was:
- The company did not pay them their dues
- The products supplied by Hughes were inferior
- Their higher-ups in the pyramid cheated them
- Hughes had connections with the Russian mafia
- Which of the following countries is NOT mentioned in the passage?
- In the year in which Hughes’ salary and bonuses came to US$ 7.3 million, what was the retail sales for Herbalife in France?
- $12 million
- $159 million
- $54 million
- $97 million
- At the time when this article was written, if Herbalife had had a market capitalisation of $ 1 billion, what would have been Hughes’ share?
- $420 million
- $580 million
- $125 million
- $500 million