Ideasphere: Twinlab's white knight?

Ailing nutritional supplement company Twinlab yesterday announced it has filed for bankruptcy protection with the Southern District of New York. The company also announced an asset purchase agreement with natural and organic products firm Ideasphere which should allow the company to remain fully operational in the long term.

The voluntary declaration, deemed necessary in order to address 'certain financial and debt-related issues', falls under chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.

In its filing last Friday with the Securities Exchange Commission Twinlab stated that it was behind on the mortgage for its Utah plant and may default on its senior notes because of the company's deteriorating financial position.

The company has seen declining sales over recent years and increased allowances for sales returns and discounts - including approximately $5.2 million of reserves relating to ephedra-containing products during the quarter to end of June. - Higher operating costs have done nothing to help financial performance.

Cost reduction initiatives in personnel, consolidation of manufacturing and distribution facilities, and the discontinuation of sales of products containing ephedra, could not pull the company out of its negative financial position.

The deal with Michigan-based Ideasphere will involve Twinlab and certain of its subsidiaries selling most of their assets for a purchase price of $65 million in cash, while Ideasphere will assume $3.7 million of employee and related liabilities as well as the majority of the company's executory contracts and unexpired leases.

The sale remains subject to mandatory bankruptcy procedures and the approval of the Bankruptcy Court in addition to satisfaction of other standard and customary conditions, including the receipt of regulatory approvals. Further details of the transaction will be disclosed following the filing.

The board of Haupage, New York-based Twinlab said it chose IdeaSphere as a potential purchaser because of its commitment to assuring ongoing operations of the company and its financial strength and experience to lead the global expansion of the brand and product line.

"In IdeaSphere we feel we have found an acquirer that will respect our commitment to science, quality and consumer satisfaction and at the same time will bring substantial resources and global capabilities that will take the Twinlab brand to a new leadership level in the 21st century,"​ said Ross Blechman, Twinlab's chairman, president and CEO.

Meanwhile, Twinlab revealed it has filed papers seeking approval from the Bankruptcy Court for a new $35 million debtor-in-possession financing facility to be provided by The CIT Group/Business Credit, as agent for a lender group. This would provide an immediate source of funds to the company, enabling it to satisfy the post-petition obligations associated with the daily operation of its business, including the timely payment of raw material purchases, manufacturing, distribution and shipping costs, employee wages and other obligations.

According to a company statement, Twinlab remains in possession of its assets and properties, and continues to operate its businesses and manage its properties as a debtor-in-possession pursuant to sections 1107(a) and 1108 of the Federal Bankruptcy Code. Twinlab also asserted that all facilities and the manufacturing and distribution plant remain functional and the company is conducting normal business operations.