Great Hill tries to get control of Vitacost

By: By Richard Craver | JOURNAL REPORTER
Published: July 20, 2010

The largest stockholder of Vitacost.com Inc. claims it has enough support to gain control of the retailer's board of directors.

Vitacost.com said yesterday that it has hired an independent inspector to determine whether Great Hill Partners has the backing of a majority of its outstanding shares.

The inspector, IVS Associates Inc., could provide an answer this week.

The announcement is the latest development in a power struggle going on for months. Great Hill owns 19.7 percent of Vitacost.com.

Analysts and local economic officials have said that any board and management shake-up is unlikely to derail Vitacost.com's plans to add 227,000 square feet to its Lexington operations, along with doubling the work force there to nearly 600. It announced those plans on May 20.

Vitacost.com, based in Boca Raton, Fla., is a manufacturer, distributor and online retailer of vitamins, herbal and other health-supplements.

"Stockholders have sent a clear message that the time to improve Vitacost is now," Michael Kumin, one of the four board nominees by Great Hill, said in a statement.

"We are committed to bringing better oversight to Vitacost's operations," Kumin said.

Great Hill said it is replacing four of the six Vitacost.com board members.

However, it did not single out Ira Kerker, who also serves as Vitacost.com's chief executive. On July 6, the group indicated Kerker's status was on the table.

What makes the potential ouster of Kerker pivotal is that the decision of Davidson County and Lexington officials to offer up to $450,000 in incentives was based primarily on getting comfortable with Kerker's growth strategy.

A matching $450,000 offer is being made from the One North Carolina Fund, which is provided through the governor's office. The company said it also is eligible for up to $2.5 million in incentives from the state based on "program eligibility."

Frederick Moran, the managing director of The Benchmark Co. LLC of Boca Raton, said he believes that a board controlled by Great Hill is likely to want a new executive-management team and get rid of the company's "poison pill."

Poison pills are used to try to hold off hostile-takeover attempts by making it more expensive for a suitor to acquire shares.

However, Moran said that a board controlled by Great Hill is more likely to try to grow the company through expansion rather than selling it to a competitor.

rcraver@wsjournal.com

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