Jenny Craig to Be Sold for $115 Million
A slimmed-down Jenny Craig Inc. agreed Monday to sell itself to a private investment group for $115 million, or $5.30 a share.
The price offered by the buyout group, led by New York-based ACI Capital Co., represents a 68% premium over Friday’s closing price of $3.15. Sid and Jenny Craig, the husband and wife team who founded the company and control 67% of its shares, will receive $73 million as a result of the transaction. They will continue to hold a small $4 million stake in the La Jolla-based company but will not be involved in its management.
Named to succeed Sid Craig as chairman and chief executive was Kent Kreh, a former chief executive of Weight Watchers International Inc. Sid Craig will remain on the company’s board.
ACI Managing Director Kevin Penn declined to comment on other financial terms of the transaction. Sally Stewart of Edelman Worldwide, the public relations firm that represents Jenny Craig Inc., said no one from the company was available to comment.
Penn, in an interview, called Jenny Craig Inc. “a terrific company” in a “growth industry.” He said that as baby boomers get older and heavier, they will turn to such companies as Jenny Craig to lose weight. “It is not just about looks,” Penn said. “It is about how long you are going to live and how healthy you are going to be.”
But Jenny Craig Inc. hasn’t yet been able to leverage the trend toward obesity to fatten its business. Since the mid-1990s, the company has been on a steady diet, dropping hundreds of weight-loss centers in the face of competition and bad publicity.
A turning point came in 1997 when the company settled long-standing false advertising complaints that arose from a federal investigation of the weight-loss industry. Though the company did not admit guilt, it was hurt by Federal Trade Commission allegations that it overstated the success of its diet program.
Jenny Craig also had been hurt by competition from a succession of diet books, low-fat foods and prescription drugs that help people lose weight. Its number of domestic weight-loss centers, which account for nearly 80% of the firm’s revenue, fell to 502 last year, down 23% from 655 in 1997. The figure includes company-owned and franchise locations. Total revenue declined 22.3% to $283.6 million in 2001 from $365.1 million in 1997.
The company reported modest improvement for the quarter that ended Sept. 30, which it attributed in part to a new weight-loss regimen that gave dieters more flexibility in their food choices. The company said dieters chose “more appealing” foods that also happened to be more expensive. Jenny Craig derives most of its revenue from food sales.
Penn said that no significant changes were planned for the business, which, he said, should continue to improve.
The Craigs have been involved in the weight-loss industry since 1970, when Sid hired Jenny to manage a chain of fitness clubs. They married in 1979, sold the fitness clubs and moved to Australia, where they started Jenny Craig Inc. They opened their first U.S. center in 1985 and went public in 1991. They continue to operate in Australia.
In 2001, Sid and Jenny Craig, both 69, each earned an annual salary of $500,000.
Jenny Craig shares rose $1.97 to $5.12 in over-the-counter trading.
