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Care And Feeding At Nutri/System


The Corporation

CARE AND FEEDING AT NUTRI/SYSTEM

Lee Iacocca, Victor Kiam, Dave Thomas, and Mike Heisley. Mike who? His name may not ring a bell, but Heisley, 56, leapt into the ranks of corporate pitchmen in January when he introduced himself on nationwide TV as "the guy who bought Nutri/System." And he guaranteed customers of the once bankrupt diet company that they would lose 10 pounds in one month if they followed the Nutri/System Inc. diet or get their money back. To give added punch to his message, the then 211-pound Heisley vowed: "I'm going to lose 10 pounds, too."

True, Heisley never quite made it as a high-profile huckster: The ads were pulled after a couple of weeks when franchisees complained they weren't effective. But Heisley seems well suited for his new role as would-be savior of Nutri/System. Through his Chicago-based investment group, Heico Acquisitions, the former computer salesman for Sperry-Univac has spent the last 15 years buying up troubled--often bankrupt--companies and nursing them back to health. At last count, he had assembled an odd collection of 26 companies, with combined estimated sales of $1.2 billion (table).

"WELLNESS." And he thinks his turnaround talents can do wonders for Nutri/System. Heisley, who says he lost six pounds on the Nutri/System plan, wants to rebuild the company's image, which has been battered by customer lawsuits and complaints from federal regulators about the effectiveness of its weight-loss regimen. He's also recasting Nutri/System as a "wellness" outfit that would offer everything from exercise equipment to stress-and-fitness counseling. "We want to change the dynamics of the [diet] industry," he says.

Heisley is to make big strides on both the image and new-services fronts when he announces a deal on Mar. 2 with health-care giant Johnson & Johnson. Under terms of the joint venture, called Real Solutions, J&J will distribute educational materials on stress and fitness at Nutri/System outlets. And for any customer filling out a questionnaire, J&J will provide an on-the-spot computer assessment of the individual's health and weight status.

Clearly, Nutri/System takes Heisley far afield from the low-tech manufacturing companies where he has had his greatest success. But he and his partners in the Nutri/System deal, including Allstate Venture Capital and Heller Equity Capital, don't think they're taking a huge gamble. One of the biggest casualties of the consumer backlash against weight-loss programs, Nutri/System sought Chapter 11 protection in April. Heisley's group offered to pump just $17 million of capital into Nutri/System--not bad in exchange for a company that in 1990 had posted profits of $135 million on revenues of $1 billion. With few other contenders emerging, a federal bankruptcy court in Philadelphia accepted the offer, awarding ownership of Nutri/System to Heisley's group in December.

Now, Heisley has to rebuild the company. Although his role as TV salesman was cut short, he plans to spend up to $30 million on advertising this year. Nutri/System hasn't had a national ad program in a year. And though the company has successfully defended itself against customer lawsuits alleging false advertising, Heisley signed a settlement with the Federal Trade Commission on Dec. 22 committing the company to full substantiation of all advertising and product claims.

STREET-COIN SPOTTER. Still, even with J&J's help, Heisley faces stiff competition. Other big players in the diet business, such as Jenny Craig Inc., are also pitching wellness programs. And it will take time to rebuild Nutri/System's network of diet centers, which has shrunk about 25% from its prebankruptcy level of 1,137. There's still some unease in the ranks. "This industry has taken a lot of hits," says Jack Overton, who operates 23 Nutri/System franchises. "And after all, Nutri/System has just come out of bankruptcy." Nutri/System this year is likely only to break even on sales of no more than $200 million.

Heisley knows that he will have to do a lot better. His ultimate goal is to get a big chunk of cash by taking Nutri/System public again in three to five years, and his resum shows he's not one to waste time--or money. Indeed, Heisley still picks coins up off the street: He says he collected an astonishing $14.74 on New Year's Day while vacationing in Aspen, Colo. Undoubtedly, he also hopes to collect a nice piece of change from Nutri/System.TABLE: THE HEISLEY EMPIRE

As chairman of Heico Acquisitions, Michael E. Heisley has gobbled up 26 companies. Here are some of the holdings:

TOM'S Snack-food producer

FOODS

NUTRI/ Dieting company

SYSTEM

PETTIBONE Builder of rough-ter-

rain vehicles, cranes,

and sewer-cleaning

equipment

AELCO Foundry-equipment

FOUNDRIES maker

DAVIS Steel-wire

WIRE manufacturer

NEWBURY Producers of injection-

INDUSTRIES molded machinery

DATA: BUSINESS WEEK

Richard A. Melcher in Chicago


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