Metabolife Files Chapter 11, Ideasphere Bids on Assets

SAN DIEGO--Under the weight of continued litigation by consumers of its ephedra-based weight-loss products, Metabolife International filed Chapter 11 bankruptcy in U.S. Bankruptcy Court, Southern District of California, in San Diego on July 1. While Metabolife has thus far managed to avoid significant adverse judgments, the mounting costs of litigation and the large number of remaining lawsuits forced the company to seek an alternative method of divestiture. The company chose bankruptcy protection in order to get the best value for its sellable assets and to determine the validity and amount of claims filed by consumers of its ephedra-based Metabolife 365 weight-loss products. Section 363 of the bankruptcy code allows for the sale of certain Metabolife assets free from liens and claims, including liabilities associated with pending litigation.

Hauppauge, N.Y.-based Ideasphere Inc. has made a stalking horse bid, the sanctioned first bid for Metabolifes non-ephedra assets. Provided no higher bids are placed at a public auction to be held in September 2005, Ideasphere will pay $23.5 million for certain non-ephedra brands, including Metabolifes Ultra, Complete, Ultra Caffeine Free and Green Tea Formula product lines. The company was drawn to the mass market penetration of the Metabolife products, which will continue to be marketed under the Metabolife brand and will operate as a separate division within Ideasphere. Also included in the sale are a state-of-the-art powder and tablet manufacturing facility in Orem, Utah, and a distribution center in Memphis, Tenn.

Ideasphere management explained the acquisition would provide additional manufacturing, distribution and customer service capacities. The Orem facility, which produces more than 80 million tablets per month, is located close to Ideaspheres existing American Fork, Utah-based Twinlab plant and will increase the companys production capacity by billions of dose forms of tablets and powders each year.

Despite their recent ephedra-related legal and financial problems, Metabolife has built up a strong customer following and tremendous brand equity in their products, said Mark Fox, president of Ideasphere. The company is entrenched in the mass channel plus, the addition of the distribution facility in Memphis will give Ideasphere a central distribution center for all our brands. Fox added the Metabolife products will boost the companys planned late-2005 entry into the Asian market and will help the company maintain its sales momentum; year-to-date sales are running 25 percent ahead of last year.