Jenny Craig Looks for Possible Buyer
Starving for profits, Jenny Craig Inc. said Monday that it has retained an investment banker to arrange a merger or sale of the nation’s second-largest weight-loss company.
Craig, which is still controlled by founders Jenny and Sid Craig, hired Koffler & Co. of Los Angeles to test the interest of health, fitness and food companies, businesses where there might be a natural fit with the diet chain’s 650 centers.
Shares of the La Jolla-based company rose 21 cents, or 15%, to close at $1.58 on Monday on the New York Stock Exchange, but Jenny Craig had a market value of only $32.7 million--less than the $34.3 million in cash it has in the bank.
“We think the company is worth far more than that,” said Stephen A. Koffler, the investment bank executive who will direct the search for a buyer. “You have a going concern with a brand name that would take several hundred million to recreate.”
Sid Craig, the company’s chairman and chief executive, said virtually all of the nation’s dieters are familiar with the Jenny Craig brand of diet centers and planned meals. “We are looking for somebody who can utilize that and pay us a lot of money,” he said.
While Americans spend $35 billion annually on weight loss products and services, the business is splintered among dozens of different types of companies, and the varied competition has eaten away at Jenny Craig in recent years.
Most of the company’s revenue comes from the sale of its branded meals through its network of diet centers. Its customers pay an enrollment fee, attend classes about weight loss and nutrition and purchase the special Jenny Craig-branded food.
But the company’s food sales have come under growing competition from supermarkets, which now sell a wide variety of diet foods, often produced by some of the largest food companies in the nation. The Weight Watchers’ food line, for example, is a separate business owned by H.J. Heinz Co.
In the counseling business, Jenny Craig is a distant second to Weight Watchers International Inc. of Woodbury, N.Y., which garners about $400 million in sales annually. Other competitors include nutritional supplement companies such as Herbalife International Inc. of Los Angeles, makers and marketers of diet pills, and specialty diets such as the Zone Diet or the Atkins Diet.
That has left Jenny Craig with a string of losses, including $23.8 million through the first nine months of its fiscal year, narrower than a $9.7 million loss in the same period a year earlier.
Also Monday, the company said it had a net loss of $477,000, or 2 cents a share, for its fiscal third quarter ended March 31, compared with net income of $1.7 million, or 8 cents a share, a year earlier. After peaking at more than $490 million in 1993, the company’s annual revenue has dropped below $300 million.
One drag on the stock is that only a small percentage of its shares are available to the public. The Craigs own 69% of the shares, making it unattractive to institutional shareholders that worry about how small changes in trading volume can significantly affect the stock price. The control by one family also gives minority shareholders little influence in the business.
Still, the company has some assets beyond its cash and its name. Jenny Craig has about $15 million in equity in its La Jolla headquarters building, which it hopes to sell for about $20 million. The company also has about $18 million in tax credits against future earnings that in some circumstances could be transferred in a merger or buyout.
The company is developing a list of target businesses and will start to shop the diet chain over the next month. One possibility is Kraft Foods, which already pays Jenny Craig around $2 million a year in royalties to sell Jenny Craig Bars. Other businesses include fitness chains, which might see synergy from locating diet centers at the gyms, Koffler said.
As it dealt with competition, the diet chain has gyrated through a series of advertising and business strategies and management changes. Sid Craig is in his second stint as chief executive.
A year ago, Jenny Craig dropped former White House intern Monica Lewinsky as its pitchwoman. Weight Watchers uses Sarah Ferguson, the Duchess of York, to promote its program in North America.
Earlier this year, Jenny Craig fired a Detroit advertising agency in favor of Johnson/Ukropina, a women-owned firm based in Irvine. And in 1997, the company agreed to provide more data about its success rates, pricing and health risks in a settlement with the Federal Trade Commission.
The weight loss centers started after Genevieve Guidroz, now Jenny Craig, became frustrated by her efforts to lose weight after having a baby. Guidroz managed a chain of fitness centers for Sid Craig. They married in 1979 and founded the Jenny Craig Weight Loss Centre in Australia in 1983. The company opened its first U.S. center in 1985 and sold shares to the public in 1991.
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Diets for Sale
Shares of La Jolla-based Jenny Craig rose 15% on Monday after company officials said they were looking for a buyer. The company has struggled amid increasing competition in the diet food sector.
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Monthly closes and latest for Jenny Craig (ticker: JC)
Monday: $1.58, up 21 cents
Source: Bloomberg News
