Herbalife Ltd., the Century City-based direct seller of nutritional and weight-loss supplements, said Thursday that it had rejected a $2.7-billion buyout offer from one of its largest shareholders, calling the acquisition price too low.
"We remain open-minded about ways to achieve appropriate value for the company," Leroy T. Barnes Jr., chairman of a committee set up by Herbalife's board of directors to study the bid, said in a statement.
Barnes said the offer was too low in light of Herbalife's steady growth and its recent license to expand operations in China, potentially a huge market for Herbalife, which already sells nearly $2 billion worth of diet shakes, weight-management pills and nutrition bars annually in 64 countries.
Last month, J.H. Whitney & Co., a private investment group that owns just over a quarter of Herbalife's shares, offered a $38-a-share bid to take the company private.
The offer put a 15% premium on the stock's closing price. It had risen steadily beyond the offer price since that time, closing at $40.27 at the end of regular trading Thursday, down 5 cents for the day.
The shares rose 10 cents in extended trading, after an announcement about the board's rejection of J.H. Whitney's buyout offer, indicating that other investors also believe the offer needs to be sweetened.
Herbalife executives declined to be interviewed and calls to New Canaan, Conn.-based J.H. Whitney were not returned. The investment group had said in filings with the Securities and Exchange Commission that it expected to borrow $2 billion to finance the purchase.
Barnes said in his statement that the board would consider a larger offer from J.H. Whitney, but that Herbalife would "continue to grow and prosper" regardless.
J.H. Whitney took Herbalife private in 2002, when it purchased the company with another investor. Herbalife then went public in 2004 and its shares have more than doubled, making millions of dollars for J.H. Whitney and other investors.
A large part of Herbalife's growth has come abroad in Third World countries, where its model of direct selling via multilevel marketing appeals to the large classes of underemployed and unemployed people.
Herbalife's products are sold by those who use them, who then recruit others to do the same. As a result, the enterprise requires no stores or sales staff. Mexico is now Herbalife's largest market.
But that country soon could be overshadowed by China, by far the world's fastest-growing consumer market. After years of prohibiting direct sales, the Chinese government opened the doors last year and companies such as Avon Products Inc., Amway Corp. and Mary Kay Inc. began hawking their wares there.
Last week, Herbalife said it had received licenses to sell direct in two Chinese cities, Suzhou and Nanjing in Jiangsu province. With more than 6 million people, Suzhou is the fifth-largest municipal economy in China, the company said, and with 8 million people, Nanjing is the second-largest commercial center in eastern China after Shanghai.
Herbalife, which is incorporated in the Cayman Islands but operates out of offices in Century City, is one of the world's most profitable direct-sales companies. It earned $101 million in the nine-month period ended Sept. 30, on revenue of $1.4 billion.