Vitamin Shoppe shares drop after competing bid falls through

By Danielle Masterson

- Last updated on GMT

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Earlier this month we reported that Vitamin Shoppe got a competing bid - but now that new player has dropped out of the bidding game.

Citing a “failure of the bidder to obtain committed financing,” from a potential, unnamed buyer, Vitamin Shoppe is moving ahead with their plan A, Liberty Tax. As part of the acquisition agreement with Liberty Tax, Vitamin Shoppe had flirted with competing bids from what it said was a range of strategic and financial entities, a so-called go-shop period. 

In a filing with the Securities and Exchange Commission, Vitamin Shoppe said it had "determined to cease negotiations" with the anonymous, competing buyer. The SEC filing also says the retailer's board of directors continues to favor the "pending merger" and "each expressly reaffirms its recommendation in favor of the pending merger with Franchise Group."

Shares decline as suitor steps out 

Despite the board's apparent confidence in the merger, Vitamin Shoppe (NYSE:VSI​) fell sharply after disclosing that it ended talks with the unidentified bidder during the go-shop period.

Shares of VSI are down 10.39% premarket to $6.47 compared to the 52-week range of $3.32 to $11.70 and buyout price of $6.50.

In early August, Vitamin Shoppe said it had definitively agreed to be acquired by Liberty Tax for $6.50 a share, or $208 million. That’s a 59% premium over the company’s 30-day weighted average stock price. That sales price, while welcome news for those who recently bought the stock, represents a steep discount from the company’s heyday.  In early 2013 the company's shares were trading at more than $60 a share.

The Vitamin Shoppe went public in 2009.  After an initial honeymoon, the company has struggled with falling earnings over the years. The Vitamin Shoppe reported $1.11 billion in sales in 2018, $1.15 billion in 2017 and in 2016 sales were $1.29 billion.

Smart money? 

Liberty Tax is the parent company of Liberty Tax Service, a chain of franchise tax preparation outlets. Last summer the company announced a plan for strategic acquisitions.  The first of these was the purchase of Buddy’s Home Furnishings, a rent-to-own furniture store chain. As of 2017, Buddy’s had 255 stores owned by franchisees and 31 company-owned stores.

Liberty says it intends to finance The Vitamin Shoppe transaction with up to $170 million in debt financing and a combination of available cash and/or through the issuance of common stock of Liberty Tax. In connection with the execution of the merger agreement, Liberty Tax entered into debt commitment letters with institutional lenders and an equity commitment letter with an affiliate of Vintage Capital Management, LLC.

The transaction is expected to be completed in the fourth quarter of 2019.

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