China-based Harbin may buy out struggling GNC

By Danielle Masterson contact

- Last updated on GMT

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Related tags: Gnc, Harbin, M&A, China

Earlier this year, the vitamin retailer sought international expansion after striking a strategic partnership deal with China-based Harbin Pharmaceutical Group. Now it appears Harbin (also known as Hayao) may buy the Pittsburgh-based health and wellness retailer outright and take it private.

After Bloomberg reported the possible buyout earlier this week, GNC shares jumped 14%. The report cited confidential sources and said Harbin has been in talks with advisers about making an offer, but had not arrived at a final decision.

Earlier this year, GNC and Harbin completed a strategic partnership deal in which Harbin invested $300 million, which led to an expanded board. Harbin added five members on to GNC’s existing board of six directors. 

Ken Martindale, GNC chief executive officer, said: "Hayao's investment in GNC is a testament to the strength of our brand and the tremendous global opportunity ahead, including in China. As a recognized leader in China, Hayao is an ideal partner as we look to leverage the strength of the GNC brand and capitalize on the demand for nutritional supplements in China. We are confident this partnership will provide us with the expertise to navigate the competitive Chinese landscape and rapidly expand our brand in China."

Zhang Zhenping, chairman of Harbin, said: "GNC is one of the most recognized health and wellness brands globally. We are excited about the opportunity to partner with Ken and his leadership team to drive long-term value creation in all markets in which Hayao and GNC operate.”

Deal or die

GNC used the Harbin investment to help pay down some of its reported $900 million in debt. It has also made franchise agreements with Brazilian retailer BFG Brazil Comercial de Vitaminas LTDA and Rapid Nutrition in Australia, advancing its global reach.

The vitamin retailer suffered as dietary supplements became more common online and in mass retailers. GNC officials had announced in November 2018 that they would close up to 900 stores over the next three years in the US and Canada as leases expire. But with the fall of the mall, the outlook isn’t good. 

"As a result of the current mall traffic trends, it's likely that we will end up closer to the top end of our original optimization estimate of 700 to 900 store closures,"​ CEO Ken Martindale said.

In July, GNC told shareholders 900 stores will close by the end of 2020. According to Martindale, mall locations make up 28% of its stores.

Facing similar issues, Vitamin Shoppe was acquired by Liberty Tax​ in an all cash deal worth $208 million last August. 

A hard pill to swallow 

GNC’s sales have been on a steady decline over the past several years, and the stock price has declined as well. Speculation of a possible sale bumped GNC shares above $2.40 early Monday before pulling back and closing at $2.29. The bump is a far cry from their heyday in 2014, when GNC’s shares were trading at more than $60. 

The vitamin retailer released their financial results, reporting a net loss of $2.4 million for the third quarter of 2019. GNC said the decrease in revenue was primarily a result of the transfer of the Nutra manufacturing and China businesses to the newly formed joint ventures, the closure of company-owned stores under their store portfolio optimization strategy, US and Canada negative same store sales of 2.8% and lower International franchise revenue.

Despite the $2.4 million loss, the company remains optimistic. “In the third quarter, GNC continued to make strides stabilizing the US retail business driven by continued success with our store optimization and cost saving initiatives.  Additionally, as outlined on last quarter’s call, we made progress in addressing e-commerce opportunities and drove solid growth in the quarter,”​ said Martindale. “While we did face headwinds in our international business, we remain excited about the long-term growth opportunities abroad.”

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