Members of Congress have raised national security concerns over the potential acquisition of GNC Holdings Inc. by a Chinese company—an affiliate of GNC's largest shareholder.

Josh Long, Associate editorial director, Natural Products Insider

September 11, 2020

5 Min Read
Competing bids, national security concerns could thwart GNC acquisition by Chinese entity

Harbin Pharmaceutical Group Holding Co. Ltd (HPGC) may be inching closer to approval to acquire GNC Holdings Inc., but the Chinese company faces two potential hurdles in its quest to take full control of the 85-year-old nutrition company—including national security concerns raised by some members of Congress.

Friday, Sept. 11, is the deadline for interested parties to submit qualified bids for GNC, which filed for Chapter 11 bankruptcy protection in June. If other bidders show interest in the Pittsburgh-based retailer of health and wellness products, an entity other than HPGC could ultimately receive court approval to acquire GNC.

In June, a struggling GNC moved to restructure its business through a Chapter 11 bankruptcy petition and reached an agreement in principle to sell the business to HPGC for $760 million in cash and debt.

The Chapter 11 case is pending before Judge Karen Owens in the U.S. Bankruptcy Court for the District of Delaware. If multiple bidders emerge for GNC, an auction is scheduled for Sept. 15, followed two days later by a hearing in which Owens would hear any objections and ultimately approve a sale to the successful bidder.

Even if GNC doesn’t receive more attractive offers for its business by the bidding deadline, HPGC—an affiliate of GNC’s largest shareholder—faces another potential roadblock: In a Sept. 10 letter to Treasury Secretary Steven Mnuchin, Sen. Marco Rubio raised national security concerns over the Chinese company’s potential acquisition of GNC. He requested a full review of the possible deal by the Committee on Foreign Investment in the United States (CFIUS), whose members include the heads of the Treasury, Justice and Homeland Security departments, among other agencies.

“The ownership of an American health and nutrition company, with sensitive data on millions of customers and retail locations on and around military installations across the U.S., by a Chinese state-directed entity, poses serious risks to U.S. national security,” wrote Rubio, Republican from Florida, in the letter to Mnuchin, who chairs CFIUS.

The letter also was sent to U.S. Attorney General William Barr and several other cabinet members of the Trump administration—all of whom are members of CFIUS.

Responding to Rubio’s letter via email, a spokesperson for GNC said, “Nothing is more important to GNC than the trust of our customers. Our consumer data is safeguarded by rigorous standards and none of it is accessible to any foreign nationals.”

Rubio’s letter was sent a week after Rep. Bill Posey (R-Florida) expressed to Mnuchin that he was concerned about HPGC’s potential acquisition of GNC based on several considerations. For instance, he said GNC has retail stores on military installations—including Patrick Air Force Base, which “hosts the sensitive operations” of the National Aeronautics and Space Administration (NASA).

“The base is the nation’s platform for critical manned spaceflight and the rapidly growing space partnership with our vibrant private sector,” Posey stated. “With the advent of the new Space Command, Patrick Air Force Base will take on even more defense-critical roles. We must protect these activities from the prying of adversarial nations for either military or industrial purposes, such as acquiring intellectual property outside our patent protections. The CFIUS regulations require a review when a firm would acquire an entity that operates stores on military installations.”  

In 2018, GNC Holdings reached an agreement regarding a strategic partnership and China joint venture agreement with HPGC. The deal was subject to several conditions, including clearance by CFIUS. According to a 2018 Securities and Exchange Commission filing by GNC, CFIUS “determined that, upon receipt of customary confirmations, there are no unresolved national security concerns with respect to such transactions.”

That was the same year President Trump signed the Foreign Investment Risk Review Modernization Act of 2018, which, according to the Treasury Department, “strengthens and modernizes CFIUS to address national security concerns more effectively.”

According to GNC’s spokesperson, “no facts or circumstances have changed to call the Committee’s [CFIUS’] support into question.”

“We will continue to work with all relevant agencies throughout the restructuring process and maintain our rigorous standards for data privacy in compliance with all applicable law,” the spokesperson added.

In his letter to Mnuchin, Rubio warned HPGC’s potential acquisition of GNC would enable “state-directed actors” to legally acquire sensitive personal data of Americans.

“Efforts to obtain personal and sensitive data related to health information and financial transactions of U.S. persons must be reviewed with an understanding of a malign foreign policy and intelligence aims of the Chinese government and Communist Party,” Rubio wrote.

Highlighting “a risk of espionage,” the senator referenced information on HPCG’s website that he said “indicates the conglomerate has worked with the People’s Liberation Army under the auspices of the Communist Party’s military-civil fusion strategy.”

Rubio also noted GNC has many retail stores near U.S. military facilities, which “have been the target of a variety of Chinese espionage activities.”

“In the event of a GNC acquisition by HPGC, Chinese authorities and intelligence officials could leverage GNC military sites to gain access to those restricted locations,” the senator concluded in his letter to Mnuchin.

Posey also raised security concerns over intentional or unintentional contamination of foods. Nutritional supplements sold by GNC are a subset of food, regulated by FDA and consequently “elements of our Food and Agriculture Critical Infrastructure Sector as designated by the Department of Homeland Security,” according to the congressman’s letter.

“Recent incidents involving prescription drug counterfeiting and contamination of drugs sourced in China should prompt similar vigilance with respect to nutritional supplements and vitamins,” Posey wrote to Mnuchin. “Foreign acquisition of critical infrastructure triggers a CFIUS review under the statute.”

Posey recommended CFIUS conduct a review with the coordination of FDA to address any concerns by FDA Commissioner Stephen Hahn.

The Treasury Department did not immediately respond to a request for comment, and HPGC could not be reached for comment.

GNC filed for Chapter 11 bankruptcy amid the coronavirus, which led to closures affecting 1,400 stores in April, according to an SEC filing. For the three months that ended June 30, its consolidated net revenues plunged $190.5 million, or 35.7%, to $343.5 million, compared with $534.0 million for the same period in 2019.

About the Author(s)

Josh Long

Associate editorial director, Natural Products Insider, Informa Markets Health and Nutrition

Josh Long directs the online news, feature and op-ed coverage at Natural Products Insider, which targets the health and wellness industry. He has been reporting on developments in the dietary supplement industry for over a decade, with a focus on regulatory issues, including at the Food and Drug Administration.

He has moderated and/or presented at industry trade shows, including SupplySide East, SupplySide West, Natural Products Expo West, NBJ Summit and the annual Dietary Supplement Regulatory Summit.

Connect with Josh on LinkedIn and ping him with story ideas at [email protected]

Education and previous experience

Josh majored in journalism and graduated from Arizona State University the same year "Jake the Snake" Plummer led the Sun Devils to the Rose Bowl against the Ohio State Buckeyes. He also holds a J.D. from the University of Wyoming College of Law, was admitted in 2008 to practice law in the state of Colorado and spent a year clerking for a state district court judge.

Over more than a quarter century, he’s written on various topics for newspapers and business-to-business publications – from the Yavapai in Arizona and a controversial plan for a nuclear-waste incinerator in Idaho to nuanced issues, including FDA enforcement of the Dietary Supplement Health and Education Act of 1994 (DSHEA).

Since the late 1990s, his articles have been published in a variety of media, including but not limited to, the Cape Cod Times (in Massachusetts), Sedona Red Rock News (in Arizona), Denver Post (in Colorado), Casper Star-Tribune (in Wyoming), now-defunct Jackson Hole Guide (in Wyoming), Colorado Lawyer (published by the Colorado Bar Association) and Nutrition Business Journal.

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