Utah's Schiff Nutrition buys Airborne for $150 million
Vitamin maker Schiff Nutrition International of Salt Lake City said it has acquired Minneapolis-based Airborne Inc. in a $150 million deal that pleased Wall Street and received conditional support from an analyst.
Airborne is a well-known provider of immune-system support supplements originally marketed to airline passengers.
Schiff acquired Airborne from GF Capital Private Equity Fund. It paid using a combination of new debt and cash on hand.
Tarang Amin, Schiff's president and CEO, said in a Monday conference call with securities analysts that the immune-system support category is one of the fastest growing in the nutritional products industry and that Airborne's line fits well with his company's existing products.
"The category continues to attract new customers and has the benefit of a favorable demographic shift," Amin said, noting that products capable of helping boost the immune system are increasingly regarded as important by an aging population.
The original Airborne product was invented in the early 1990s by Victoria Knight-McDowell, an elementary-school teacher from Carmel, Calif. The company, however, found itself under fire for its marketing and packaging, which portrayed the product as beneficial in treating and preventing colds and other ailments. In 2008, its owners paid $30 million to settle false advertising claims brought by the Federal Trade Commission and attorneys general in 32 states who were concerned the company's was overstating the product's benefits.
Shortly after those settlements, control of Airborne was sold to GF Capital.
Airborne has an established market and broad distribution network, and is a well-recognized brand with more than 70 percent consumer awareness. It generated revenue of approximately $70 million for the 12 months ended Feb. 29, Amin said.
Securities analyst Timothy Ramey, with D.A. Davidson & Co., said in a note to clients Monday that Airborne grew tremendously from 1997 to 2007, then hit a wall with the legal and regulatory challenges of the claims on its packaging. He said peak sales were "significantly higher" than they are now. The business is also highly cyclical with the cold and flu seasons.
"It is unclear if this business is a growth strategy [for Schiff] or a turnaround strategy," he said.
Ramey said he is concerned that such a "large and transformative acquisition" was announced by Schiff without any financial details for Airborne, other than the single point statement of $70 million in sales.
"Schiff spent $150 million on the acquisition, an amount equal to roughly 43 percent of its market capitalization," he wrote, indicating that he assumes that the bankers involved in the transaction and largest shareholders of the company know all about Airborne's financials. "So it is just the public shareholders who are left in the dark. Despite this lack of clarity, we are comfortable with the strategy of this acquisition."
Becky Herrick, who helps handle investor relations for Schiff, said Airborne has about 35 employees. Many of them will stay on board during the transition period to the new ownership, but after Airborne's operations are combined with Schiff's they will be let go, she said.
Schiff, which during its 2011 fiscal year generated revenue of $214 million, has 414 employees. The company's shares, which trade on the New York Stock Exchange, closed Monday at $12.90, up 61 cents, or about 5 percent for the day.
"Schiff intends to couple Airborne's leading brand and product portfolio with our strong capabilities in science and innovation," said CEO Amin. "For example, there has been promising scientific research into the potential relationship between BC30, the proprietary probiotics technology we acquired rights to last year, and supporting the immune system."
Probiotics are microorganisms that are introduced into the body to help maintain the natural balance of organisms in the intestines.
Amin added that the Utah company is conducting a study in the United Kingdom on the effects of BC30 on the immune function of healthy elderly people. "This is one of the many potential opportunities to bring science and innovation to Airborne."
Marti Morfitt, Airborne's CEO, said he was pleased to see his company move to the team at Schiff. "They bring great talent and resources to the business and share our passion for building a leading immune-support brand."
A look at both companies:
Schiff Nutrition International Inc.
What does it do? • Manufacturers and markets vitamins and other nutritional products
Headquarters • Salt Lake City
Annual revenue • $214 million
Employees • 414
What does it do? • Provides products designed to support a person's immune system.
Headquarters • Minneapolis
Annual revenue • $70 million
Employees • 35