Nestle will divest Jenny Craig in North America, Australia and New Zealand, the Swiss company said today in a statement. The price was probably less than the approximately $600 million Nestle paid in 2006, analysts at Natixis and SNS Securities said. The French business is not part of the transaction with the private-equity firm, which will combine Jenny Craig with its Curves fitness clubs for women.
Nestle chief executive officer Paul Bulcke said last month that the company was drawing up a shortlist of businesses it is looking to sell after identifying laggards it cannot fix. Analysts had identified Jenny Craig as a possible candidate to be jettisoned, alongside PowerBar energy snacks, Lean Cuisine frozen meals and Herta meats. Jenny Craig sells diet food and offers nutrition consultants for people trying to lose weight.
The brand has been a “perennial underperformer” since it was acquired in a deal championed by Bulcke, Eddy Hargreaves, an analyst at Canaccord Genuity in London, wrote in an e-mail. The CEO was head of Nestle’s North American business at the time.
While Jenny Craig has “been a drag on overall North American performance in recent years,” the sale is not material to Nestle on a group level, Hargreaves said. “It does demonstrate a preparedness on Nestle’s part to divest underperforming assets, particularly as there had been a suspicion in the market that Jenny Craig was sacrosanct, given the CEO’s personal involvement in the original deal.”
Nestle, the maker of Nescafe coffee, has “allowed underperformers to underperform for too long,” Bulcke said October 1. The strategy shift comes as the Vevey, Switzerland-based company faces economic slowdowns in some emerging markets and ongoing weakness in Europe. Nestle reported nine-month sales on October 17 that rose at a slower pace than its full-year target.
Jenny Craig has suffered as dieters shift to newer weight-loss remedies and cut spending, so the business has exited the U.K. and closed diet centers in the U.S. Analysts Pierre Tegner at Natixis and Richard Withagen at SNS Securities both said North Castle probably paid less than Nestle’s purchase price seven years ago.
Jenny Craig’s net annual sales were probably less than 400 million Swiss francs ($439 million), Natixis estimated. Nestle reported sales last year of about 90 billion francs.
“The impact on the group should not be highly visible but this disposal is the start of longer process of asset optimization,” Natixis wrote in an e-mail. “This news will be positively welcomed.”
North Castle’s combination of Jenny Craig with Curves International, a fitness club chain it acquired last year, will offer nutrition planning and strength training “under one roof,” the company said in a statement. Monty Sharma, CEO of Waco, Texas-based Curves, will run the business.
“Putting Curves together with Jenny Craig will bring our total business to a new level and allow us to offer consumers all of the tools they need,” Sharma said in the statement.
North Castle focuses on health and wellness businesses with revenue ranging from $10 million to $200 million, according to its website. It also owns Red Door Spas and Performance Bicycles.
The new owners will offer employment to Jenny Craig’s workers, Nestle said. Jenny Craig employs 3,000 people, according to company spokesman Robin Tickle.