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GNC Holdings to Boost International Business With New Deals


GNC Holdings, Inc. GNC has been dominating the headlines on announcements of plans to strike a couple of deals with China’s leading pharmaceutical company — Harbin Pharmaceutical Group Holding Co., Ltd (“Hayao”). Notably, the company intends to enter a strategic partnership and China joint venture agreement with Hayao.

Under the terms of the equity investment agreement, Hayao will invest in around $300-million in cash or in kind in GNC Holdings.

Following the closing of the transaction, Hayao will own around 40% of GNC Holdings on a converted basis. The investment is anticipated to strengthen GNC Holdings’ capital position. However, subject to certain customary closing conditions in the United States and China, the transaction is expected to close in the second half of 2018.

At the same time, GNC Holdings will enter into a joint venture agreement with Hayao. Notably, leveraging on the latter’s expertise in operational and manufacturing areas as well as broad pharmaceutical distribution network in China, GNC Holdings plans to strengthen its presence in China’s booming supplements market.

However, closure of the Hayao transaction is dependent on the successful completion of GNC Holdings’ plans to amend and extend its term loan facility. Interestingly, GNC Holdings aims to extend the maturity date of the term loan facility by two years, to March 2021 and issue a $275-million ABL Term Loan as part of the planned maturity extension.

International Business — A Key Growth Driver

Notably, GNC Holdings’ international business has been a key growth driver for the company in recent years. Of late, the company has been seeing solid growth in China. Furthermore, over the recent past, the company has witnessed improvement in trends in Mexico, South Korea and Hong Kong. We believe successful completion and execution of these agreements will significantly drive top-line contributions from China.

Market Potential

Per a report by Grand View Research, the global market for dietary supplements is expected to see a CAGR of 9.5% between 2016 and 2024. The report further states that usage of the supplements in treating cardiovascular diseases and malnutrition will continue to boost demand. Thus, in view of such data, we believe GNC Holdings’ joint-venture plan with Hayao is strategic.

Share Price Performance

GNC Holdings has been gaining investor confidence on consistently positive results. Over the past month, the company’s share price has outperformed the industry. The stock has gained 33%, as against the industry’s 9.8% decline.

Zacks Rank & Key Picks

GNC Holdings carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical sector are PerkinElmer PKI, Bio-Rad Laboratories BIO and Becton, Dickinson and Company BDX.

Bio-Rad Laboratories has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The company has a long-term expected earnings growth rate of 25%.

PerkinElmer has a long-term expected earnings growth rate of 12.3%. The stock carries a Zacks Rank #2.

Becton, Dickinson and Company has a Zacks Rank #2. The company has a long-term expected earnings growth rate of 13.3%.

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