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FTC investigation clouds Vitamin Shoppe-Super Supplements deal

By Hank Schultz , 02-Jan-2013

The planned acquisition of Super Supplements, a Seattle-based chain, by Vitamin Shoppe Inc. appears to be in question after the Federal Trade Commission’s decision to extend its investigation into the transaction past the planned Dec. 31 closing date.

The Vitamin Shoppe said it had been informed of FTC’s move in a letter and said the agency, “has not yet provided any indication as to the likely outcome or ultimate timing of its inquiry.”

The planned closing date for the transaction will be extended to March 1 and the companies are cooperating in the investigation, the statement said.  But, it cautioned, “There can be no assurance as to whether and when the transaction will be consummated in light of these developments.”

Dominant player in Pacific Northwest

The transaction, if it eventually goes through, would make Vitamin Shoppe a dominant force in the Pacific Northwest.  Super Supplements has 31 stores in Washington, Oregon and Idaho;  Vitamin Shoppe currently has 17.   Overall, Vitamin Shoppe has more than 500 stores in 42 states.

Vitamin Shoppe had planned to pay about $50 million for Super Supplements . The transaction is structured as a purchase of Super Supplements' assets by a wholly-owned subsidiary of the Vitamin Shoppe, and is being funded by available cash.

When it announced the transaction on Dec. 17, Vitamin Shoppe said it expects Super Supplements to contribute about $75 million in revenue in 2013.  Integration of the two chains will cost about $7 million spread over 2013 and 2014 and Vitamin Shoppe expects that the acquisition will start to contribute earnings in 2104, according to CFO Brenda Galgano.

In early November, Vitamin Shoppe recorded fiscal third quarter 2012 nets sales growth of 14.4% and operating income growth of of 40.5%.  It was the 28th consecutive quarter of sales growth, according to the company. During the period, the company reported fully diluted earnings per share (EPS) of $0.54; up from $0.40 in fiscal third quarter 2011. For the nine-month period, fully diluted EPS was $1.71, up from $1.20 in the comparable period of the prior year.

Shares of Vitamin Shoppe posed a 2012 gain of 40%, and were up slightly in early trading on Jan. 2, 2013 at $58.38.

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