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Nestle's Purchase of Jenny Craig 'Makes Sense'

Posted on: Tuesday, 20 June 2006, 21:00 CDT

By Keith Darce, The San Diego Union-Tribune

Jun. 20--The sale of Jenny Craig, the Carlsbad weight-loss company, to Swiss chocolate maker Nestle might seem a strange fit.

But the $600 million deal announced yesterday will combine Jenny Craig with a food company with a history of developing and selling products in the health and nutritional foods market.

"It makes sense," said John LaRosa, a diet industry analyst and president of Marketdata Enterprises in Tampa, Fla.

Executives at the world's largest food company by sales "are looking at demographic trends and seeing that Americans are getting fatter," he said. "We have an obesity problem that will not go away anytime soon. They need a food offering to capitalize on that."

Jenny Craig will become part of Nestle Nutrition, a division of the parent food company based in Vevey, Switzerland, that sells baby food, energy bars and health-care nutritional supplements.

Jenny Craig's chief executive, Patti Larchet, will report directly to Richard Laube, CEO of Nestle Nutrition. The division's products include Good Start infant formula and Nutren, a liquid food that can be delivered through a feeding tube.

Sid and Jenny Craig, who founded the company in 1983 in Australia and relocated to Carlsbad in 1985, will soon cut their last ties with the company.

They kept control of 20 percent of the business in 2002 when equity investors ACI Capital and MidOcean Partners came in to attempt a turnaround.

The sale announced yesterday to Nestle -- valued at nearly five times the 2002 deal -- covers the entire company.

The Craigs could not be reached for comment yesterday on the sale or their future plans.

The acquisition, expected to be completed by the end of September, will fill a void in Nestle's Nutrition division for personalized weight management services, said Laurie MacDonald, spokeswoman for the company's U.S. operations.

Jenny Craig offers clients personal weight-loss plans through 640 centers mostly in the United States, Australia and New Zealand. Clients pay a membership fee and purchase prepared meals from the company.

About 120,000 people follow a Jenny Craig program each week, according to the company's Internet Web site.

Unlike Weight Watchers and other diet programs that focus more on behavior, Jenny Craig's 75 meal offerings are a central, and mandatory, part of the company's program and the main way the company makes money, La Rosa said.

Jenny Craig's recent financial success also made the company an attractive acquisition target.

After the Craigs took the company public, their business began to falter and was delisted from the New York Stock Exchange just before ACI and MidOcean acquired a controlling interest for $115 million in 2002.

Under the direction of the new owners, Jenny Craig managers renovated outdated weight loss centers and launched YourStyle, which uses client surveys to tailor weight-loss programs to individual preferences.

The owners funded the turnaround program by reinvesting profits into the business, said Nicky McGrane, a principal with MidOcean and a former member of Jenny Craig's board of directors.

The company also launched a wildly successful marketing campaign featuring actress Kirstie Alley, who has lost at least 65 pounds on the program after topping 200 pounds before the diet change.

The owners are profiting handsomely from the turnaround. Nestle's purchase price is nearly five times what ACI and MidOcean paid to acquire 80 percent of the company four years ago.

LaRosa estimated that Nestle's purchase price of $600 million is about one and a half times larger than Jenny Craig's annual revenue, which he puts at about $400 million.

As a privately held company, Jenny Craig is not required to make its financial results public.

"The story here is not one of massive cash investments in a business," said Ezra Field, a member of the Jenny Craig board and managing director of ACI. "It is a matter of prudent investments and good decisions that led to a resurgence of a brand."

Nestle shares closed 0.7 percent higher yesterday on the Zurich exchange at 371.25 Swiss francs ($301.59).

The company's American Depository Receipts rose 5 cents yesterday to $75.15.

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Copyright (c) 2006, The San Diego Union-Tribune

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Source: The San Diego Union-Tribune

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