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Nutri-System in Negotiations With Potential New Owners : Fiscal crisis: The company is looking for a buyer to bail it out of a financial mess that forced 280 diet centers to close.

TIMES STAFF WRITER

Nutri-System Inc. was said to be negotiating with potential buyers Thursday as it sought a way out of the financial mess that forced it to abruptly close 280 company-owned diet centers across the country, including about 40 in the greater Los Angeles area.

The company was thrown into corporate chaos late Wednesday when its bankers seized the troubled company’s cash and took control of its bank accounts. The company immediately sent its 1,800 employees home indefinitely.

Nutri-System’s 857 franchises nationwide remained open on Thursday, and their operations continued normally. Franchise owners said they were continuing to receive the prepackaged food that Nutri-System centers sell. They were hopeful that sale discussions would lead to a rescue of the debt-ridden company, one of the nation’s largest weight-loss chains.

The 12 Nutri-System diet centers in Orange County are franchise-owned and will remain open, said Joanne Watanabe, general manager of the franchise companies, Be Slim Enterprises and Be Trim Ltd. in Costa Mesa.

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“We’re getting calls from customers and we’re telling them it’s business as usual,” she said.

Bruce Epstein, a Los Angeles businessman and investor in 85 Nutri-System diet center franchises, said talks were underway near the company’s headquarters in Blue Bell, Pa., with two different potential buyers. Epstein refused to identify the interested parties, but said neither is a competing diet firm.

Nutri-System’s headquarters was closed, and company officials could not be reached for comment.

According to Epstein, Nutri-System has been seeking a buyer for nearly a year. He said the company owed a consortium of seven banks about $40 million, which was used to finance what turned out to be an ill-conceived national expansion.

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Epstein said Nutri-System had defaulted on its bank loans several months ago. The company was making interest payments, he said, but was not paying off the principal.

Epstein said he did not know what caused Nutri-System’s bankers, led by Fidelity Bank, to become impatient.

In a press release issued late Wednesday, Nutri-System said the banks’ action was “unwarranted” and came “without warning.”

Nutri-System’s sizable debt was not its only problem. Two years ago, the company was hit with numerous lawsuits from customers who said the diet resulted in gall bladder injury and other health problems. The charges culminated in congressional hearings.

Though the health problems were never conclusively linked to the diet, the publicity hurt the company, and the lawsuits cost millions to defend.

The company has also suffered from an overall downturn in the diet business, brought about by the recession and less interest in exercise and dieting. Epstein said that business at his diet centers, spread throughout the western United States, was off 10% to 15% this year.

Most recently, Nutri-System was named as the target of a false advertising investigation by the Federal Trade Commission. The FTC said it was investigating certain success claims made by Nutri-System and its leading competitors as part of an overall investigation of the diet industry. Nutri-System and its competitors have maintained that their advertising is accurate.

Times staff writer Dean Takahashi contributed to this report.

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