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Key Herbalife Investor Supports Sale

Health: Member of investment company Steel Partners II backs $685-million bid by two private equity firms.

April 12, 2002|DENISE GELLENE | TIMES STAFF WRITER

An investor who lobbied for the sale of Herbalife International said Thursday that he supported the $685-million offer for the supplement maker.

"I think it's great," said Warren Lichtenstein, managing member of Steel Partners II of New York.

Steel Partners II and another investor, Jana Partners of San Francisco, last year called for the sale of the Los Angeles-based company after the death of Herbalife founder Mark Hughes. The two investment firms own 4% of Herbalife shares.

Lichtenstein wouldn't say whether his firm had a role in negotiations that led to the sale, which was announced Wednesday. But his support indicates that a possible stumbling block to the deal has been removed. A representative of Jana Partners couldn't be reached.

Herbalife is being acquired by two private equity firms for about $685 million, or $19.50 a share. Herbalife's management, including Chief Executive Frank Tirelli, also is participating in the deal.

When the transaction is completed, probably by midsummer, the company's management and distributors will own an undetermined percentage of the company, Tirelli said.

Tirelli said the deal came about because the family trust that holds Hughes' stock needed to sell its 57% stake in Herbalife to diversify its assets. He said the Herbalife board reviewed several offers, which Tirelli declined to identify.

Tirelli said he did not participate in the review.

Asked whether the offer from Whitney & Co. of Stamford, Conn., and Golden Gate Capital of San Francisco was the highest bid, Tirelli said he did not know. But he added that the board probably recognized the fact that it is an all-cash deal of $19.50 a share, a premium to Herbalife's close Wednesday. The company's Class A shares closed at $15.39 and the Class B shares closed at $14.40 before the deal was announced.

On Thursday in Nasdaq trading, Class A shares rose $3.73 to $19.12 and Class B gained $4.65 to $19.05.

Tirelli said Herbalife will take on $300 million in debt to pay for the deal. It must be approved by regulators and Class A shareholders.

Hughes, 44, died two years ago in his $25-million beachfront home of an accidental overdose of alcohol and sleeping pills. By last summer, investors pressed for a sale, concerned that the company was adrift without its charismatic founder.

Herbalife had sales of $1.7 billion in 2001, with about 43% coming from its dietary supplements.

The supplements have prompted two wrongful death suits against the company because they contain the herb ephedra. The Food and Drug Administration has linked the herb to hundreds of adverse reactions and dozens of deaths.

Herbalife said in its latest annual report that its product-liability insurance premium soared from $400,000 in 2000 to $2.5 million last year, even as its deductible increased tenfold to $5 million, and its coverage limit fell by $10 million to $40 million.

Bloomberg News contributed to this report.

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