GNC Holdings last week announced a strategic partnership and China-based joint venture with Chinese pharmaceutical company Harbin Pharmaceutical Group Holding Co. The deal is expected to close in the second half of this year, subject to regulatory approvals in the U.S. and China, GNC shareholder approval, successful completion of the amendment and extension of the GNC's term loan facility due March 2019, entry into definitive agreements regarding the joint venture and other customary closing conditions.
Major Hayao shareholder CITIC Capital Holdings Limited is supportive of the transaction, according to a press release from the two companies. Following the deal's closing, Hayao will own some 40% of GNC on an as-converted basis, they said.
GNC also announced plans to amend certain terms and extend the maturity date of its term loan facility due in March next year, seeking to extend its maturity date by two years, to March 2021, according to the release.
In this deal, Hayao will invest some $300 million in GNC, becoming its single largest shareholder, plus the companies have agreed to form a joint venture for the manufacturing, marketing, sale and distribution of GNC-branded products in China.
It could be a life-saving move for GNC, which has struggled in recent years, especially before the arrival of interim CEO Bob Moran, who helped right the ship before handing over the reins to former Rite Aid CEO Ken Martindale late last year.
A couple of years ago rumors of a potential deal with rival Vitamin Shoppe circulated, as well as some interest from Chinese strategic buyers. China's Xiwang Foodstuff in June of 2016 acquired Canadian supplements maker Iovate Health Sciences International for $730 million, but GNC was widely seen as overly leveraged, poorly managed and stumbling too badly to be much of an attraction.
The supplements retailer has apparently overcome such obstacles enough to draw serious interest. Among the company's moves early last year — in addition to ongoing benefits from the mass shuttering-and-reopening event late in 2016 that was both a literal and symbolic rebirth of the company's approach — GNC opened a storefront on Amazon (sales from that are included in its e-commerce sales, the company said). The Amazon business is exceeding expectations, the company said in April, with higher-margin products doing well there.
The company is also seeing positive results from changes to its loyalty program: The retailer estimates that under the current program, loyalty members will be shopping six times per year (compared to four under the previous model), spending more than its previous Gold Card customers, executives said last fall.
The stores have also shifted the emphasis of the customer experience from driving staff to boost loyalty membership to training associates to have conversations around how supplements can solve customer problems, like marathon or sports training regimens or addressing health issues like sleep problems. To help sales associates, the company has provided them with tablets so that information is at their fingertips, executives told analysts. The company is also being more mindful about discounts, moving to cut prices in a way that is more targeted, more "meaningful" to customers and will drive traffic, executives have said.
Hayao's investment is a testament to the strength of the brand, Martindale said in a statement. "By partnering with Hayao and pursuing plans to amend and extend our term loan facility, we enhance our capital structure and financial flexibility and establish a strong platform for growth in the Chinese market," he said.