Investigation Launched in Carlyle Group/NBTY Deal

The Carlyle Group on July 15 agreed to acquire nutritional supplements manufacturer/marketer NBTY for $3.8 billion, marking one of the first private equity mega-deals in the direct-to-consumer market since the recession began.

But some NBTY investors are not happy about the pending transaction and have prompted an investigation over possible fiduciary duty breaches and other violations by the NBTY board.

Lee Helman, managing director with investment firm Financo, was surprised at the high price tag for NBTY. The Ronkonkoma, NY-based company, which includes the Puritan’s Pride catalog, recorded sales of $2.6 billion for fiscal 2009.

But Helman notes that NBTY is a “platform company for sure.” Carlyle must intend on either taking it global “or leveraging sourcing capabilities, or both,” he says.

Keen interest from other private equity groups — including a teamed-up Bain Capital and Blackstone Group and Apollo Global Management – helped push the premium up for NBTY. There is a go-shop provision in the deal, which means NBTY has until Aug. 18 to solicit other proposals.

The Carlyle Group’s offer represents a premium of about 57% over NBTY’s average closing share price during the 30 trading days ended July 14. Stuart Rose, managing director for investment firm Tully & Holland, says the sale price is around an eight times EBITDA (earnings before interest, taxes, depreciation and amortization) multiple.

The investigation on behalf of shareholders will look into whether the NBTY board of directors breached their fiduciary to stockholders by failing to adequately shop the company and seek a better deal before supporting the Carlyle agreement.

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