A federal bankruptcy judge approved the sale of GNC Holdings Inc. to Harbin Pharmaceutical, GNC’s largest shareholder and China’s largest drugmaker, for $770 million.

WHO: GNC has an 85-year history as a leading global health and wellness brand providing high-quality science-based products and solutions consumers need to live mighty, live fit, live long, and live well. The brand touches consumers globally through company-owned retail locations, domestic and international franchise locations, digital commerce, and strong wholesale and retail partnerships across the globe. As of March 31, 2020, GNC had approximately 7,300 locations, with approximately 5,200 retail locations in the United States (including approximately 1,600 Rite Aid licensed store-within-a-store locations), and the remainder are locations in approximately 50 countries.

Harbin Pharmaceutical Group Co., Ltd. describes itself as a state-controlled Sino-foreign equity joint venture that engages in the research, development, manufacture, wholesale, and retail of pharmaceutical products.

WHY: The company pursued a dual-track restructuring for a stand-alone plan or going-concern sale process, with the support of certain of its secured lenders, an affiliate of its largest shareholder, Harbin Pharmaceutical Group Holding Co., Ltd., and GNC’s largest vendor and a joint venture partner, IVC. An agreement in principle for the sale of the company’s business had been reached, with the term sheet documenting that agreement outlining a $760 million purchase price for the sale transaction, which would be executed through a court-supervised auction process at which higher and better bids may be presented.

DETAILS:

• A federal bankruptcy judge approved the sale of GNC Holdings Inc. to China’s largest drugmaker, Harbin Pharmaceutical, for $770 million.
• The deal is made up of $550 million in cash, including $4.5 million that will be used to pay unsecured creditors, as well as notes and assumed liabilities.
• The judge’s approval of the sale to Harbin preempted any auction that the bankruptcy court would have conducted to see if any other entity would have bid more for the company.
• Harbin Pharmaceutical Group Holding Co., an affiliate of GNC’s largest shareholder that owns 40% of the company, also agreed to assume GNC’s liabilities. The sale price included Harbin paying off $220 million in loans and other debts that GNC had accumulated as it attempted to stay afloat.
• In June GNC filed for Chapter 11 bankruptcy protection after a bankruptcy auction process failed to produce any interested parties. Revenue had declined for years, and the company posted a positive profit only two years out of the last five. In the period ending March 31, GNC’s revenue took a hit of 16% year-over-year, and it racked up a $166 million operating loss. The company was saddled with nearly $1 billion of debt, and it was downgraded by S&P to CC in late March, as the COVID-19 pandemic was accelerating and GNC signaled it probably wouldn’t generate enough cash from its business to make a major debt payment.
• In February 2018 Harbin Pharmaceutical Group invested $300 million in GNC and was running GNC’s Asian business in Shanghai.
• As part of its Chapter 11 restructuring, 800-1,200 stores out of its more than 5,000 will close.
• GNC’s wellness category has experienced more than 50% year-over-year sales growth online with an increase of 25- to 45-year-old female shoppers. Glossy reported that historically, health and beauty category sales have been less than 10% of GNC’s US sales, but with growth initiatives for the next 2-3 years, GNC expects health and beauty to increase to 15-20% of the business.