<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1/A
AMENDMENT NO. 12
TO
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
HERBALIFE INTERNATIONAL, INC.
(Name of Subject Company)
MH MILLENNIUM HOLDINGS LLC
MH MILLENNIUM ACQUISITION CORP.
MARK HUGHES
(Bidders)
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
426908208 (CLASS A)
426908307 (CLASS B)
(Cusip Number of Class of Securities)
MH MILLENNIUM HOLDINGS LLC
MH MILLENNIUM ACQUISITION CORP.
MARK HUGHES
C/O HERBALIFE INTERNATIONAL, INC.
1800 CENTURY PARK EAST
LOS ANGELES, CA 90067
ATTN. TIMOTHY GERRITY
TEL. (310) 410-9600
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
COPY TO:
ANTHONY T. ILER, ESQ.
IRELL & MANELLA LLP
333 SOUTH HOPE STREET, SUITE 3300
LOS ANGELES, CA 90071
(213) 620-1555
(Continued on following pages)
(Page 1 of 7 pages)
<PAGE> 2
2
CUSIP No. 426908208 14D-1/A Page 2
426908307
================================================================================
1. Name of Reporting Persons MH MILLENNIUM HOLDINGS LLC
S.S. or I.R.S. Identification Nos. of Above Persons 95-475-8098
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a)/X/
(b)/ /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Sources of Funds
Not Applicable
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization
DELAWARE
- --------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
(1)
- --------------------------------------------------------------------------------
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7
(1)
- --------------------------------------------------------------------------------
10. Type of Reporting Person
CO
================================================================================
(1) MH Millennium Holdings LLC owns no shares of any class of common stock of
the Company. The Mark Hughes Family Trust (the "Trust"), however, which is
the sole member of MH Millennium Holdings LLC, as of September 8, 1999
beneficially owned 5,704,331 Class A Shares and 11,258,665 Class B Shares,
(including 308,331 Class A Shares and 466,665 Class B Shares which the Trust
has a right to acquire within 60 days of the date hereof), representing in
the aggregate 55.4% of the outstanding Class A Shares and 59.0% of the
outstanding Class B Shares, respectively. Mark Hughes is the sole trustee of
The Mark Hughes Family Trust and its beneficiary.
<PAGE> 3
3
CUSIP No. 426908208 14D-1/A Page 3
426908307
================================================================================
1. Name of Reporting Persons MH MILLENNIUM ACQUISITION CORP.
S.S. or I.R.S. Identification Nos. of Above Persons 95 475 7938
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a)/X/
(b)/ /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Sources of Funds
SC/BK/OO (subordinated debentures)
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization
NEVADA
- --------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
(2)
- --------------------------------------------------------------------------------
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7
(2)
- --------------------------------------------------------------------------------
10. Type of Reporting Person
CO
================================================================================
(2) MH Millennium Acquisition Corp. owns no shares of any class of common stock
of the Company. MH Millennium Holdings LLC, however, owns 100% of MH
Millennium Acquisition Corp. For further information, see note 1 on page 2
of this Schedule 14D-1.
<PAGE> 4
4
CUSIP No. 426908208 14D-1/A Page 4
426908307
================================================================================
1. Name of Reporting Persons Mark Hughes
S.S. or I.R.S. Identification Nos. of Above Persons
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a)/X/
(b)/ /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Sources of Funds
Not Applicable
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization
United States
- --------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
(3)
- --------------------------------------------------------------------------------
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7
(3)
- --------------------------------------------------------------------------------
10. Type of Reporting Person
IN
================================================================================
(3) Mr. Hughes, directly or indirectly, is the beneficial owner of 5,704,331
Class A Shares and 11,258,665 Class B Shares, excluding 183,333 Class A
Shares and 366,666 Class B Shares owned by the Herbalife Family Foundation
(in which Mr. Hughes has no pecuniary interest) and including 308,331 Class
A Shares and 466,663 Class B Shares issuable upon exercise of stock options
that are exercisable within 60 days of September 1, 1999. The Class A Shares
and the Class B Shares beneficially owned by Mr. Hughes or entities
controlled by him, calculated in accordance with the SEC's Exchange Act Rule
13d-3, represented 55.4% of the total outstanding Class A Shares and 59.0%
of the total outstanding Class B Shares as of September 1, 1999.
<PAGE> 5
MH Millennium Acquisition Corp., a Nevada corporation (the "Purchaser"),
hereby amends and supplements, as set forth in this Amendment No. 12, its Tender
Offer Statement relating to its Offer to Purchase all outstanding shares of
Class A common stock and Class B common stock of Herbalife International, Inc.,
a Nevada corporation. The item numbers and responses thereto below are in
accordance with the requirements of Schedule 14D-1. The tender offer is being
made upon the terms and subject to the conditions set forth in the Offer to
Purchase dated September 17, 1999 (the "Offer to Purchase"), as supplemented by
the Second Supplement to the Offer to Purchase dated February 4, 2000 (the
"Second Supplement") (which together with any amendments or supplements to the
Offer to Purchase, collectively constitute the "Offer"). A copy of the Offer to
Purchase was attached as Exhibit (a)(1) to the initial filing of the Tender
Offer Statement. The Second Supplement is attached as Exhibit (a)(18) to this
Amendment No. 12.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
The response to Item 3(b) of the Tender Offer Statement is supplemented
as follows: The information set forth under "ADDITIONAL INFORMATION - SPECIAL
FACTORS - BACKGROUND OF THE OFFER AND THE MERGER" in the Second Supplement is
hereby incorporated by reference.
ITEM 10. ADDITIONAL INFORMATION.
The response to Item 10(f) of the Tender Offer Statement is supplemented
as follows: The information set forth in the Second Supplement, a copy of which
is attached as Exhibit (a)(18) to this Amendment No. 12, is hereby incorporated
by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS:
Item 11 of the Tender Offer Statement is supplemented by adding the
following information thereto:
(a)(18) Second Supplement to Offer to Purchase, dated as of February 4, 2000.
(b)(2) Updated Opinion from Bear, Stearns & Co. Inc., dated as of
January 23, 2000 (included as Annex A to Exhibit (a)(18)).
<PAGE> 6
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: February 4, 2000
MH MILLENNIUM HOLDINGS LLC:
By: /s/ MARK HUGHES
------------------------------------------
Name: Mark Hughes
Title: Managing Member
MH MILLENNIUM ACQUISITION CORP.:
By: /s/ MARK HUGHES
-----------------------------------------
Name: Mark Hughes
Title: President
/s/ MARK HUGHES
----------------------------------------------
MARK HUGHES
<PAGE> 7
EXHIBIT INDEX
(a)(18) Second Supplement to Offer to Purchase, dated as of February 4, 2000.
(b)(2) Updated Opinion from Bear, Stearns & Co. Inc., dated as of
January 23, 2000 (included as Annex A to Exhibit (a)(18)).
<PAGE> 1
SECOND SUPPLEMENT TO THE OFFER TO PURCHASE FOR CASH
MH MILLENNIUM ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY OF
MH MILLENNIUM HOLDINGS LLC,
HAS AMENDED ITS
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF
CLASS A COMMON STOCK AND CLASS B COMMON STOCK OF
HERBALIFE INTERNATIONAL, INC.
AT
$17.00 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MONDAY, FEBRUARY 14, 2000, UNLESS THE OFFER IS FURTHER EXTENDED.
MH Millennium Acquisition Corp., a Nevada corporation (the "Purchaser"),
hereby amends and supplements, as set forth herein, its Offer to Purchase, filed
on September 17, 1999 (as amended, the "Offer to Purchase"), pursuant to which
the Purchaser offered to purchase all outstanding shares of Class A common stock
and Class B common stock of Herbalife International, Inc., a Nevada corporation.
The first supplement to the Offer to Purchase, dated as of January 11, 2000 (the
"First Supplement") provided information with respect to the making of a
supplemental payment, equal to $0.81 per share, to stockholders that are members
of the Settlement Class (as defined in the First Supplement) (the "Supplemental
Payment") pursuant to the terms of a Stipulation of Settlement (the "Stipulation
of Settlement"). This second supplement to the Offer to Purchase (the "Second
Supplement") provides information with respect to the delivery by Bear, Stearns
& Co. Inc. of an updated opinion (the "Updated Opinion") to the effect that, as
of January 23, 2000, and subject to the assumptions and qualifications set forth
therein, the consideration to be received in the Offer and the Merger, plus the
Supplemental Payment, was fair, from a financial point of view, to the Public
Stockholders.
This Second Supplement should be read in conjunction with the Offer to
Purchase and the First Supplement. Except as set forth in this Second
Supplement, the terms and conditions previously set forth in the Offer to
Purchase, as supplemented by the First Supplement, remain applicable in all
respects to the Offer. Terms used but not defined in this Second Supplement have
the meanings set forth in the original Offer to Purchase.
Questions and requests for assistance, or for additional copies of this
Second Supplement or other tender offer materials, may be directed to the
Information Agent or the Dealer Manager at the addresses and telephone numbers
set forth on the back cover. Holders of Shares may also contact brokers, dealers
or banks for additional copies of this Second Supplement or other tender offer
materials.
THE OFFER TO PURCHASE AND THIS SECOND SUPPLEMENT CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
DONALDSON, LUFKIN & JENRETTE
February 4, 2000
<PAGE> 2
TENDERING SHARES
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either: (a) complete and sign the Letter of Transmittal previously
delivered by Purchaser or Parent (or a facsimile thereof) in accordance with the
instructions in the Letter of Transmittal, have such stockholder's signature
thereon guaranteed if required by Instruction 1 to such Letter of Transmittal,
and mail or deliver the Letter of Transmittal (or such facsimile) together with
the certificate(s) representing such Shares and any other required documents to
U.S. Stock Transfer Corporation (the "Depositary") or tender such Shares
pursuant to the procedures for book-entry transfer set forth under "The Tender
Offer -- 3. Procedures for Tendering Shares" in the Offer to Purchase or (b)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such stockholder. A stockholder
whose Shares are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if such stockholder desires to tender such
Shares.
Any stockholder who desires to tender such stockholder's Shares and whose
certificates representing such Shares are not immediately available or who
cannot comply with the procedures for book-entry transfer on a timely basis may
tender such Shares by following the procedures for guaranteed delivery set forth
under "The Tender Offer -- 3. Procedures for Tendering Shares" in the Offer to
Purchase.
STOCKHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED SHARES PURSUANT TO THE
OFFER AND WHO HAVE NOT WITHDRAWN THOSE SHARES NEED NOT TAKE ANY FURTHER ACTION
IN ORDER TO (I) TENDER SHARES PURSUANT TO THE OFFER, AND (II) IF THEY ARE
MEMBERS OF THE SETTLEMENT CLASS, RECEIVE THE SUPPLEMENTAL PAYMENT. STOCKHOLDERS
WHO HAVE TENDERED SHARES PURSUANT TO THE GUARANTEED DELIVERY PROCEDURE SHOULD
COMPLY WITH THE REQUIRED PROCEDURES. SEE "THE TENDER OFFER -- 3. PROCEDURES FOR
TENDERING SHARES" IN THE OFFER TO PURCHASE.
ADDITIONAL INFORMATION
SPECIAL FACTORS
BACKGROUND OF THE OFFER AND THE MERGER. The discussion set forth in
"Special Factors -- Background of the Offer and the Merger" in the Offer to
Purchase is hereby amended as follows:
To insert the following immediately before the discussion set forth in
"Recommendation of the Special Committee and the Board of Directors; Fairness of
the Offer and the Merger" on page 10:
Pursuant to the Stipulation of Settlement, on January 13, 2000, the First
Supplement and the notice of pendency were circulated to the Settlement Class.
At the January 24, 2000 meeting of the Special Committee, Bear Stearns
delivered its opinion (the "Bear Stearns Updated Opinion" or the "Updated
Opinion") to the effect that, as of January 23, 2000, and subject to the
assumptions and qualifications set forth therein, the consideration to be
received in the Offer and the Merger, plus the Supplemental Payment, was fair,
from a financial point of view, to the Public Stockholders. For a description of
the Updated Opinion, see "Special Factors -- Updated Opinion of Financial
Advisor to the Special Committee".
UPDATED OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE. Immediately
following the discussion set forth in "Special Factors -- Opinion of Financial
Advisor to the Special Committee" on page 19 of the Offer to Purchase, insert
the following:
UPDATED OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
At the January 24, 2000 meeting of the Special Committee, Bear Stearns
delivered its opinion (the "Bear Stearns Updated Opinion" or the "Updated
Opinion") to the effect that, as of January 23, 2000, and subject to the
assumptions and qualifications set forth therein, the consideration to be
received in the Offer and the Merger, plus the Supplemental Payment, was fair,
from a financial point of view, to the Public Stockholders.
THE FULL TEXT OF THE BEAR STEARNS UPDATED OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY BEAR STEARNS, IS ATTACHED AS ANNEX A
2
<PAGE> 3
TO THIS SECOND SUPPLEMENT TO THE OFFER TO PURCHASE, AND IS INCORPORATED HEREIN
BY REFERENCE. THE SUMMARY OF THE BEAR STEARNS UPDATED OPINION SET FORTH IN THIS
SECOND SUPPLEMENT TO THE OFFER TO PURCHASE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE BEAR STEARNS UPDATED OPINION. HERBALIFE
STOCKHOLDERS ARE URGED TO READ CAREFULLY THE BEAR STEARNS UPDATED OPINION IN ITS
ENTIRETY.
The Updated Opinion is expressly intended for the benefit and use of the
Special Committee and does not constitute a recommendation to the Special
Committee or any holders of Shares as to whether to tender their Shares in the
Offer. The Updated Opinion does not address the Continuing Stockholder's
underlying business decision to pursue the Offer and the Merger.
The consideration to be received by the Public Stockholders in the Offer
and the Merger was determined by Mr. Hughes and the Special Committee through
arm's-length negotiations. Although Bear Stearns was consulted and provided
certain advice to the Special Committee from time to time during the course of
such negotiations, the consideration to be received was not based on any
recommendation by Bear Stearns. The Special Committee did not provide specific
instructions to, or place any limitations upon, Bear Stearns with respect to the
procedures to be followed or factors to be considered by Bear Stearns in
performing its analyses or rendering the Bear Stearns Updated Opinion. The
Supplemental Payment was determined through negotiations between counsel for the
Settlement Class Members and counsel for Defendants in the Class Action.
In the course of performing its review and analyses for rendering the
Updated Opinion, Bear Stearns:
- reviewed the Merger Agreement and the Stipulation of Settlement;
- reviewed Herbalife's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1996 through 1998, and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1999, June
30, 1999 and September 30, 1999;
- reviewed certain operating and financial information, including revised
projections, provided to Bear Stearns by management relating to
Herbalife's business and prospects;
- met with certain members of Herbalife's senior management to discuss
Herbalife's business, operations, historical and revised projected
financial statements and future prospects;
- reviewed the historical prices, valuation parameters and trading volumes
of the Class A Shares and Class B Shares of Herbalife;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which Bear Stearns deemed generally
comparable to Herbalife;
- reviewed the terms of recent acquisitions of companies which Bear Stearns
deemed generally comparable to Herbalife;
- performed discounted cash flow analyses based on the revised projections
for Herbalife furnished to Bear Stearns; and
- conducted other studies, analyses, inquiries and investigations that Bear
Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including without limitation the revised projections provided
to it by Herbalife. With respect to Herbalife's revised projected financial
results, Bear Stearns assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the senior
management of Herbalife as to the expected future performance of Herbalife.
Further, Bear Stearns has relied upon representations of the senior management
of Herbalife that the audited 1999 financial results, when available, will not
vary materially from Herbalife's estimated 1999 financial results. Bear Stearns
did not assume any responsibility for the independent verification of any such
information or of the revised projections provided to Bear Stearns, and Bear
Stearns further relied upon the assurances of the senior management of Herbalife
that they were unaware of any facts that would make the information and
projections provided to Bear Stearns incomplete or misleading. In arriving at
the Updated Opinion, Bear
3
<PAGE> 4
Stearns did not perform or obtain any independent appraisal of the assets or
liabilities of Herbalife, nor was Bear Stearns furnished with any such
appraisals.
Bear Stearns noted that the Continuing Stockholder owns a majority of the
Class A Shares and Class B Shares of Herbalife. Bear Stearns also noted that the
Continuing Stockholder has represented to Bear Stearns and to the Special
Committee that he has no intention of selling any of his Shares. Accordingly,
neither Bear Stearns nor the Special Committee solicited, nor was Bear Stearns
asked to solicit, third party acquisition interest in Herbalife. Bear Stearns
assumed that the representations and warranties made in the Merger Agreement
were true and that the Offer and the Merger will be completed in accordance with
the terms of the Merger Agreement. The Bear Stearns Updated Opinion is
necessarily based on economic, market and other conditions, and the information
made available to Bear Stearns, as of the date at such Updated Opinion.
In connection with preparing and rendering the Bear Stearns Updated
Opinion, Bear Stearns performed a variety of valuation, financial and
comparative analyses. The summary of such analyses, as set forth below, does not
purport to be a complete description of the analyses underlying the Bear Stearns
Updated Opinion. The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to summary description. Bear Stearns believes
that its analyses must be considered as a whole, and that selecting portions of
its analyses and the factors considered by it, without considering all such
factors and analyses, could create an incomplete view of the processes
underlying the Updated Opinion. Moreover, the estimates contained in such
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Accordingly,
such estimates are inherently subject to substantial uncertainties.
The following is a summary of the material valuation, financial and
comparative analyses performed by Bear Stearns in arriving at the Bear Stearns
Updated Opinion as of the date thereof.
(i) Comparable Public Company Analysis. In the course of its analysis, Bear
Stearns compared certain ratios and multiples of Herbalife to the corresponding
ratios and multiples of certain publicly-traded companies that Bear Stearns
believed were generally comparable to Herbalife (the "Comparable Companies").
The Comparable Companies included Natrol, Inc., Nature's Sunshine Products,
Inc., NBTY, Inc., Nu Skin Enterprises, Inc., Nutraceutical International
Corporation, Rexall Sundown, Inc., Twinlab Corporation, USANA, Inc. and Weider
Nutrition International, Inc. The multiples and ratios were calculated based on
publicly available financial information and research reports, and were adjusted
for certain extraordinary and non-recurring items. Financial data reviewed
included revenue, earnings before interest, taxes, depreciation and amortization
("EBITDA"), earnings before interest and taxes ("EBIT"), net income and earnings
per share ("EPS") for various time periods as well as certain operating margins,
valuation statistics, financial ratios and projected growth rates. For purposes
of its analysis, Bear Stearns also reviewed the harmonic mean of certain
valuation multiples of the Comparable Companies.
Among other analyses, for each of the Comparable Companies, Bear Stearns
calculated the ratio of their equity value as of January 19, 2000 plus debt less
cash and cash equivalents ("Enterprise Value") to their respective revenues,
EBITDA and EBIT during the most recent 12-month period ("LTM") and projected
calendar 1999 and 2000 revenues, EBITDA and EBIT and the ratios of their stock
prices as of January 19, 2000 to their respective LTM earnings per share and
projected calendar year 1999 and 2000 earnings per share. References to "P/E" in
the tables below refers to a price to EPS multiple.
4
<PAGE> 5
Results of those analyses are summarized as follows:
REVENUE, EBITDA AND EBIT MULTIPLES
<TABLE>
<CAPTION>
ENTERPRISE VALUE/
------------------------------------------------------------------------------------
LTM PROJECTED CALENDAR 1999 PROJECTED CALENDAR 2000
-------------------------- -------------------------- --------------------------
REVENUES EBITDA EBIT REVENUES EBITDA EBIT REVENUES EBITDA EBIT
-------- ------ ------ -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HERBALIFE TRANSACTION MULTIPLE......... 0.52x 4.8x 5.8x 0.50x 4.6x 5.3x 0.48x 4.4x 5.1x
COMPARABLE COMPANIES MULTIPLE RANGE:
Low.................................. 0.46x 3.4x 4.2x 0.49x 3.3x 4.1x 0.40x 2.4x 3.0x
Harmonic Mean........................ 0.74 5.1 6.5 0.81 5.5 6.8 0.65 4.4 5.5
High................................. 1.73 11.1 16.0 1.71 10.6 15.2 1.05 7.9 9.6
SHARE PRICE IMPUTED BY MULTIPLE:
Low.................................. $16.98 $14.70 $14.90 $18.22 $14.84 $15.70 $16.44 $12.59 $13.06
Harmonic Mean........................ 24.33 19.29 20.25 26.66 21.21 22.48 23.22 18.38 19.50
High................................. 49.56 35.93 42.09 50.35 36.37 43.55 34.25 29.13 30.40
</TABLE>
P/E MULTIPLES
<TABLE>
<CAPTION>
CALENDAR CALENDAR
LTM 1999 2000
P/E P/E P/E
------ -------- --------
<S> <C> <C> <C>
HERBALIFE TRANSACTION MULTIPLE.......................... 10.7x 9.6x 9.5x
COMPARABLE COMPANIES MULTIPLE RANGE:
Low................................................... 7.4x 7.3x 5.3x
Harmonic Mean......................................... 11.0 11.7 8.0
High.................................................. 29.9 27.1 16.9
SHARE PRICE IMPUTED BY MULTIPLE:
Low................................................... $12.35 $13.43 $ 9.82
Harmonic Mean......................................... 18.34 21.67 15.02
High.................................................. 49.85 50.19 31.53
</TABLE>
Bear Stearns noted that the Comparable Companies that distributed their
products predominantly through use of multi-level marketing generally traded at
discounts to those companies which used traditional distribution channels.
Further, Bear Stearns observed that the companies which traded above the
harmonic mean tended to be larger companies (relative to Herbalife) in terms of
equity market capitalization and value of public float. Bear Stearns also noted
that earnings forecasts were not generally available for certain of the smaller
Comparable Companies, which may provide an upward bias to the harmonic means of
forecasted earnings.
Bear Stearns also analyzed the historical and revised projected financial
performance of Herbalife as well as the historical and projected financial
performance of the Comparable Companies. Bear Stearns observed that Herbalife's
historical growth rates of revenues and earnings were generally lower than those
of the Comparable Companies and that such slower growth was generally expected
to continue in the future based on the revised management projections. Bear
Stearns also compared Herbalife's profit margins to those of the Comparable
Companies and noted that Herbalife's margins were generally lower than those of
the Comparable Companies.
Bear Stearns chose the Comparable Companies because they have general
business, operating and financial characteristics similar to those of Herbalife.
However, Bear Stearns noted that no company used in the foregoing analysis is
identical to Herbalife. Accordingly, Bear Stearns did not rely solely on the
mathematical results of the analysis, but also made qualitative judgments
concerning differences in financial and operating characteristics of Herbalife
and the Comparable Companies and other factors that could affect the values of
each.
5
<PAGE> 6
(ii) Comparable Transactions Analysis. Bear Stearns reviewed certain
publicly-available financial information related to 14 merger and acquisition
transactions completed or pending completion over the prior four years that it
deemed generally comparable to the Transaction (the "Comparable Transactions").
For each of the Comparable Transactions, Bear Stearns reviewed certain
publicly-available financial information for the acquired companies including
revenue, EBITDA, EBIT, net income and certain valuation statistics, as adjusted
for certain extraordinary and non-recurring items. Bear Stearns observed that
the multiples paid in the Comparable Transactions were generally substantially
higher than those implied for Herbalife in the Offer and the Merger. Bear
Stearns noted that all but two of these transactions took place prior to the
substantial decline in the stock prices of companies in thevitamin and
nutritional supplement sector beginning in the summer of 1998. Bear Stearns
noted that the equity market capitalizations for publicly-traded companies in
the vitamin and nutritional supplement sector in most cases fell by over 50%
(and in the case of one company as high as 83%) from June 1998 as compared to
September 1999. Valuation multiples for such companies fell similarly. Valuation
multiples for the Comparable Companies as of January 2000, with the exception of
NBTY, Inc., have remained at approximately the same levels, or slightly lower
levels, compared to September 1999. Accordingly, Bear Stearns put little weight
on its analysis of Comparable Transactions in reaching its valuation
conclusions.
Bear Stearns noted that no transaction used in the foregoing analysis is
identical to the Offer and the Merger. Accordingly, Bear Stearns did not rely
solely on the mathematical results of the analysis, but also made qualitative
judgments concerning differences in financial and operating characteristics of
the Comparable Transactions and other factors that could affect the value of the
companies or transactions to which Herbalife or the Offer and the Merger are
being compared.
(iii) Discounted Cash Flow Analysis. In the course of this analysis, Bear
Stearns, based on revised management projections, calculated a stream of future
unlevered free cash flows for the years ended December 31, 2000 to 2006.
Unlevered free cash flow, as calculated by Bear Stearns, is equal to
tax-effected earnings before interest and taxes (EBIT) plus depreciation and
amortization less capital expenditures and working capital requirements. The
cash flows were discounted at certain discount rates ranging from 12.0% to
16.0%, based on a weighted average cost of capital estimated, in part, by using
the Comparable Companies. A terminal value was calculated to estimate the value
of all future cash flows by using a growing perpetuity of the 2006 (the last
projected year) cash flow, assuming perpetual growth rates of between 0.0% to
4.0%. Such perpetual growth rates imply terminal value multiples of EBITDA of
3.9x to 5.7x (at a discount rate of 14%). The summation of the present value of
the projected unlevered free cash flows and the present value of the terminal
value yielded per share results is summarized in the following table:
<TABLE>
<CAPTION>
PERPETUAL GROWTH RATES
------------------------------------------
0.0% 1.0% 2.0% 3.0% 4.0%
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Discount Rates:
12.0%......................................... $21.03 $21.84 $22.81 $23.99 $25.48
14.0%......................................... 18.57 19.10 19.71 20.44 21.31
16.0%......................................... 16.73 17.09 17.50 17.98 18.53
</TABLE>
Bear Stearns also performed certain sensitivity analyses assuming higher
and lower revenue growth rates (+/- 5% revenue growth rate from the management
projections) and higher and lower profit margins (+/- 2% EBITDA margin). Such
analyses produced values for Herbalife of $13.40 to $27.39 per share.
6
<PAGE> 7
(iv) Public Shareholder Valuation Analysis. Bear Stearns examined the
present value to stockholders of holding Herbalife stock for three and five
years. Specifically, Bear Stearns assumed that Herbalife continued to pay
dividends at the current level and that the hypothetical stock price in three
and five years was estimated based on multiplying projected EPS (based on the
revised management projections) by a range of P/E multiples. The sum of the
present value of the dividend stream and the present value of the estimated
stock price at the end of the projected period was used to determine a
hypothetical current value for the stock. Bear Stearns used a range of discount
rates from 12.0% to 20.0%, based on the estimated cost of equity capital for
Herbalife. The range of present values of the projected dividend payments and
the estimated future stock price after five years is summarized in the following
table:
<TABLE>
<CAPTION>
P/E MULTIPLE -- YEAR 5
------------------------------------------
8.0X 10.0X 12.0X 14.0X 16.0X
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Discount Rates:
12.0%......................................... $12.38 $14.93 $17.48 $20.04 $22.59
14.0%......................................... 11.41 13.75 16.08 18.42 20.76
16.0%......................................... 10.53 12.68 14.82 16.96 19.10
18.0%......................................... 9.74 11.71 13.68 15.64 17.61
20.0%......................................... 9.03 10.84 12.64 14.45 16.26
</TABLE>
Similarly, Bear Stearns performed such analysis using the future stock
price after three years. Based on this analysis, a range of stock prices from
$11.16 to $25.78 was calculated.
(v) Historical Stock Price Analysis. Bear Stearns reviewed the historical
closing stock prices of Herbalife Class A Shares and Herbalife Class B Shares.
Over the prior twelve months ending on September 9, 1999, (which was shortly
prior to the Transaction announcement on September 13, 1999), Herbalife's Class
A Shares had traded between a high of $16.25 on January 14, 1999 and a low of
$7.50 on October 8, 1998 and Herbalife's Class B Shares traded between a high of
$13.00 on January 14, 1999, and a low of $6.00 on October 8, 1998. Bear Stearns
also observed that Herbalife's non-voting Class B Shares have consistently
traded at a substantial discount to the voting Class A Shares since the
recapitalization in December 1997 and up to the Transaction announcement.
Bear Stearns noted that the stock prices of Herbalife during 1997 and the
first half of 1998 were generally above $20.00, with the stocks trading for a
short period of time above $30.00. Bear Stearns also noted that the stock prices
of Herbalife fell significantly during the summer of 1998, which coincided with
(i) difficult market conditions and reduced financial performance in certain of
Herbalife's international markets, including Russia, and (ii) an overall decline
in the stock prices for companies in the vitamin and nutritional supplement
sector due in part to perceived slowing of industry growth rates and increased
competition in the sector.
Bear Stearns observed that, based on the proposed transaction price to the
Public Stockholders of $17.81 per share (including the Supplemental Payment) for
both the Class A Shares and the Class B Shares, the following premia were
applicable as of September 9, 1999:
<TABLE>
<CAPTION>
TRANSACTION PREMIUM OVER
PERIOD PRIOR TO --------------------------------
TRANSACTION ANNOUNCEMENT CLASS A SHARES CLASS B SHARES
------------------------ -------------- --------------
<S> <C> <C>
One-Day Prior............................................ 47.6% 91.2%
One-Month Prior.......................................... 49.2 86.2
20 Trading Days Average.................................. 48.2 90.5
One-Year Average......................................... 50.5 87.0
52-Week High............................................. 9.6 37.0
52-Week Low.............................................. 137.5 196.8
</TABLE>
Bear Stearns compared these premia with those of certain "going private"
and "minority buy-in" transactions which it deemed comparable and found that the
premia to be paid in the Transaction to the Class A Shares were generally above
the premia paid in such transactions, with the premia to the Class B Shares
generally at the high end of such transactions. Bear Stearns further noted that
while premia analyses
7
<PAGE> 8
are an indicia of value, such analyses by themselves were not sufficient to
reach conclusions as to financial fairness.
(vi) Other Analyses. Bear Stearns conducted such other analyses as it
deemed necessary, including the following:
- reviewing historical and revised projected financial and operating data
for Herbalife;
- analyzing selected investment research reports on, and earnings and other
estimates for, Herbalife;
- analyzing the historic stock performance and trading volume for both
classes of Herbalife common stock, prior to the Transaction announcement;
- analyzing the historic dividend payments and dividend yields of
Herbalife;
- reviewing available information regarding the institutional holdings of
both classes of Herbalife common stock, prior to the Transaction
announcement; and
- analyzing illustrative investment returns to a potential financial buyer
in a hypothetical third-party leveraged buyout of Herbalife.
The Special Committee engaged Bear Stearns as its financial advisor based
on Bear Stearns' experience and expertise. Bear Stearns is an internationally
recognized investment banking firm that has substantial experience in the
healthcare and consumer products industries and expertise in transactions
similar to the Transaction. As part of its investment banking business, Bear
Stearns is continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Pursuant to
the terms of its engagement letter dated July 21, 1999 (as amended on January
10, 2000) (the "Bear Stearns Engagement Letter"), the Special Committee has
agreed to have Herbalife (i) pay Bear Stearns a non-refundable retainer in the
amount of $400,000, (ii) pay Bear Stearns a fee of $1.35 million in connection
with the delivery of the Bear Stearns Opinion, (iii) pay Bear Stearns a fee of
$500,000 in connection with the delivery of the Bear Stearns Updated Opinion and
(iv) reimburse Bear Stearns for all reasonable out-of-pocket expenses (including
fees and disbursements of counsel, and of other consultants and advisors
retained by Bear Stearns). Herbalife has also agreed to indemnify Bear Stearns
and certain related persons against certain liabilities in connection with its
engagement, including certain liabilities under the federal securities laws. In
the ordinary course of business, Bear Stearns may actively trade the equity
securities of Herbalife for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
8
<PAGE> 9
ANNEX A
BEAR STEARNS LOGO BEAR STEARNS ADDRESS
January 23, 2000
The Special Committee of the Board of Directors
Herbalife International, Inc.
1800 Century Park East
Los Angeles, CA 90067
Gentlemen:
We understand that Herbalife International, Inc. ("Herbalife") and one or
more entities directly or indirectly controlled by Mark Hughes (the "Principal
Shareholder") entered into a merger agreement dated September 13, 1999, (the
"Agreement") pursuant to which all outstanding shares of Class A and Class B
common stock of Herbalife other than those already owned by the Principal
Shareholder will receive $17.00 per share in cash (the "Consideration to be
Received") by means of a tender offer (the "Tender Offer") followed by a
subsequent merger (the "Merger"). The Agreement also provides for the cashing
out of each outstanding option to acquire Herbalife common stock (other than
those held by the Principal Shareholder) at a price equal to $17.00 per share
less the applicable exercise price of such option. Further, the Agreement calls
for Herbalife to make certain loans (which may be forgiven under certain
circumstances) to the Principal Shareholder in the aggregate amount of
approximately $215 million (such series of transactions herein collectively
referred to as the "Transaction"). You have provided us with a copy of the
Agreement. We note that although the Principal Shareholder controls a majority
of the Class A and Class B common stock, the Agreement provides for a condition
to the Transaction that requires holders of at least a majority of the
outstanding shares of each class of Herbalife common stock not owned by the
Principal Shareholder to tender such shares in the Tender Offer. The Agreement
also provides for the right for holders of Class A and Class B common stock to
dissent and receive appraised value for their shares.
We also understand that on January 6, 2000 Herbalife reached a tentative
agreement to settle certain outstanding lawsuits related to the Transaction (the
"Stipulation of Settlement"). Under the Stipulation of Settlement, the Principal
Shareholder will be required, among other things, to make a supplemental payment
(the "Supplemental Payment") to the Settlement Class Members (as that term is
defined in the Stipulation of Settlement) in an amount equal to $0.81 per share
in cash.
You have asked us to render our opinion as to whether the Consideration to
be Received, together with the Supplemental Payment, is fair, from a financial
point of view, to the shareholders of Herbalife, excluding the Principal
Shareholder.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed the Agreement and the Stipulation of Settlement;
- reviewed Herbalife's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1996 through 1998, and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1999, June
30, 1999 and September 30, 1999.
- reviewed certain operating and financial information, including revised
projections, provided to us by management relating to Herbalife's
business and prospects;
- met with certain members of Herbalife's senior management to discuss
Herbalife's business, operations, historical and projected financial
statements and future prospects;
- reviewed the historical prices, valuation parameters and trading volumes
of the Class A and Class B common stock of Herbalife;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which we deemed generally
comparable to Herbalife;
A-1
<PAGE> 10
- reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Herbalife;
- performed discounted cash flow analyses based on the revised projections
for Herbalife furnished to us; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the revised projections, provided to us by Herbalife. With
respect to Herbalife's revised projected financial results, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and relied upon the judgments of the senior management of
Herbalife as to the expected future performance of Herbalife, including
representations that the audited 1999 financial results, when available, will
not vary materially from Herbalife's estimated 1999 financial results. We have
not assumed any responsibility for the independent verification of any such
information or of the projections provided to us, and we have further relied
upon the assurances of the senior management of Herbalife that they are unaware
of any facts that would make the information and projections provided to us
incomplete or misleading. In arriving at our opinion, we have not performed or
obtained any independent appraisal of the assets or liabilities of Herbalife,
nor have we been furnished with any such appraisals.
We note that the Principal Shareholder owns a majority of the shares of
Class A and Class B common stock of Herbalife. We also note that the Principal
Shareholder has represented to us and to the Special Committee of the Board of
Directors of Herbalife (the "Special Committee") that he has no intention of
selling any of his holdings of Herbalife common stock. Accordingly, we have not
solicited, nor were we asked to solicit, third party acquisition interest in
Herbalife. We have assumed that the representations and warranties made in the
Agreement are true and that the Transaction (including the Merger) will be
completed in accordance with the terms of the Agreement. Our opinion is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof.
We have acted as a financial advisor to the Special Committee in connection
with the Transaction and have received a fee for such services. In the ordinary
course of business, Bear Stearns may actively trade the equity and debt
securities of Herbalife for our own account and for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is intended for the benefit and use of
the Special Committee and does not constitute a recommendation to the Special
Committee or any holders of Herbalife common stock as to whether to tender their
shares in the Tender Offer or how to vote in connection with the Merger. This
opinion does not address Herbalife's underlying business decision to pursue the
Transaction. This letter is not to be used for any other purpose, or reproduced,
disseminated, quoted to or referred to at any time, in whole or in part, without
our prior written consent; provided, however, that this letter may be included
in its entirety in any tender offer document or proxy statement to be
distributed to the holders of Herbalife common stock in connection with the
Transaction.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be Received, together with the Supplemental
Payment, is fair, from a financial point of view, to the shareholders of
Herbalife, excluding the Principal Shareholder.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ DAVIES B. BELLER
------------------------------------
Davies B. Beller
Senior Managing Director
A-2
<PAGE> 11
Facsimile copies of the Letter of Transmittal previously delivered properly
completed and duly signed, will be accepted. The Letter of Transmittal
previously delivered, certificates for Shares and any other required documents
should be sent by each stockholder of the Company or the stockholder's broker,
dealer, commercial bank, trust company or other nominee to the Depositary as
follows:
The Depositary for the Offer is:
U.S. STOCK TRANSFER CORPORATION
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission: By Hand or Overnight Delivery:
U.S. Stock Transfer Corporation (for Eligible Institutions Only) U.S. Stock Transfer Corporation
1745 Gardena Avenue 1745 Gardena Avenue
Glendale, CA 91204 818-502-1737 Glendale, CA 91204
Attn: Reorganization Department Attn: Reorganization Department
For Confirmation Telephone:
818-502-1404
</TABLE>
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal previously delivered or the Notice of
Guaranteed Delivery may be directed to the Information Agent at the telephone
numbers and location listed below. You may also contact your broker, dealer,
commercial bank or trust company or other nominee for assistance concerning the
Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005-4495
Banks and Brokerage Firms Call Collect: (212) 269-5550
All Others Call Toll Free: (800) 928-0153
The Dealer Manager for the Offer is:
DONALDSON, LUFKIN & JENRETTE
2121 Avenue of the Stars
Los Angeles, California 90067
(310) 282-7667 (call collect)
