Herbalife to Go Private in Founder Buyback

LOS ANGELES—Direct seller Herbalife Intl. (HERBA, HERBB) will go private as a result of the acceptance by the company’s board of directors of an offer from HERBA founder, Chairman, President and CEO Mark Hughes and entities controlled by Hughes to acquire for $17/share cash all of the outstanding Class A and Class B company shares not currently owned by Hughes.

Herbalife says the $17/share price represents a premium of about 42% over its Sept. 13 closing price of $12/share for Class A shares and 86% over the Sept. 13 closing price of $9.16/share for Class B shares.

Hughes currently owns 5.4 million Class A shares, about 54% of the voting Class A shares, and 10.8 million Class B shares, about 58% of the nonvoting Class B shares.

The transaction is valued at close to $486 million and calls for raising $440 million in debt. It will use about $60 million of the cash on the company’s balance sheet.

Hughes said in a letter posted on the company’s website and reported by the Associated Press that HERBA had not been “rewarded in the public-equity markets” and that “the conditions which may have contributed to this are not likely to change in the near term.” HERBA posted earnings of $48.5 million on sales of $867 million in 1998, indicating an EBITDA of approximately $94 million. By mid-September, HERBA stock had increased in value 43% during 1999.

According to industry observer Chance Bahadur, president of Chicago-based The Bahadur Group, Hughes is correct about Herbalife’s stock price. “Herbalife is taking advantage of its stock price being unjustifiably low. It is just being opportunistic,” he says.