GNC to Go Public Again

PITTSBURGH--In the second attempt in two years, private equity firm Apollo Management has decided to take GNC Corp. public, offering a total of 23.5 million shares, including 14.1 million shares currently held by Apollo. The initial public offering (IPO) share price is expected to be between $16 and $18, which would net as much as $252 million for Apollo, which bought GNC from Royal Numico in 2003 for $750 million. The IPO will cut Apollo's stake in GNC from 97 percent to 58 percent, a slim majority. Proceeds from the other 9.4 million shares offered will go to redeem GNC's preferred stock, which is worth $100 million, with the rest to be used for working capital and general corporate spending. Following the IPO, GNC will trade on the New York Stock Exchange (NYSE) under the symbol GNC.

Apollo is one of many private equity firms to recently cash out of disappointing investments, including the divestitures of Hertz by a Merrill Lynch-led group and of Burger King by a Goldman Sachs-led contingent. In 2003, Numico sold GNC, which it had put on probation for poor performance, to Apollo shortly after selling off its troubled Rexall Sundown business. During Apollo's reign as GNC parent, revenues at the nutrition retailer sunk from $1.43 billion in 2003 to $1.32 billion in 2005. However, GNC's recently released second quarter results show six-month revenues up 15 percent year-over-year, on pace to match or best its 2003 mark.

Despite the recent gains, the GNC IPO is hitting the market at a time when investors are extremely cautious about IPOs, which has pushed pricing lower than most selling companies expected. Further, shareholders are apprehensive about Apollo retaining its majority share status, which will exempt it from certain corporate governance controls designed to protect shareholders, including exclusion from requirements to maintain a corporate governance or compensation committee.

Apollo is hoping for a mid-August date for its IPO, which will be underwritten by Merrill Lynch, Lehman Brothers and UBS.