Business Acquisitions

6 Months Ended

Jun. 30, 2014

Business Combination, Step Acquisition [Abstract]

Business Acquisitions

Business Acquisitions

In August 2008, the Company signed a definitive agreement to purchase ViSalus, a direct seller of weight management products, functional foods, nutritional supplements and energy drink mixes, through a series of investments. In October 2008, the Company completed its initial investment and acquired a 43.6% equity interest in ViSalus for $13.0 million in cash and incurred acquisition costs of $1.0 million for a total cash acquisition cost of $14.0 million. In April 2011, the Company completed the second phase of its acquisition of ViSalus for approximately $2.5 million, increasing its ownership to 57.5%. In January and April 2012, the Company completed the third phase of its acquisition of ViSalus and increased its ownership to 72.7% for approximately $28.7 million in cash and the issuance of 681,324 unregistered shares of the Company's common stock valued at $14.6 million.

In December 2012, the Company purchased an additional 8.2% of ViSalus increasing its ownership to 80.9% for a payment of $60.5 million to the ViSalus founders and its other noncontrolling members. In addition, the ViSalus founders and the other members exchanged their remaining membership interests for a total of 8,955,730 shares of Series A and Series B Redeemable Preferred Stock of ViSalus Inc. (“Preferred Stock”), which will become redeemable on December 31, 2017 for a total redemption price of $143.2 million. The Preferred Stock is redeemable for cash on December 31, 2017 at a price per share equal to $15.99 unless prior thereto ViSalus shall have effected a “Qualified IPO” or the holders, at their option, elect to convert their Preferred Stock into common shares of ViSalus. In January 2013, the Company made a final payment of $25.3 million to certain equity rights holders associated with the Company's acquisition of ViSalus.

The Company has accounted for the redeemable preferred stock in accordance with the guidance of ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and the non-codified portions of Emerging Issues Task Force Topic D-98, “Classification and Measurement of Redeemable Securities”. ASC 480 requires preferred securities that are redeemable for cash to be classified outside permanent equity if they are redeemable (1) at a fixed or determinable date, (2) at the option of the holder or (3) upon occurrence of an event that is not solely within the control of the issuer. Accordingly, the Company has classified the Preferred Stock outside of permanent equity as its redemption has been determined to be not solely within the control of the issuer.

As of June 30, 2014, $146.7 million of Preferred Stock was recorded outside of permanent equity as required by ASC 480. The Company determined the fair value of the Preferred Stock in December 2012 based on an allocation of ViSalus's total enterprise value to its Preferred and common stock components utilizing an option pricing model. The option pricing model considered the characteristics of the ViSalus Preferred and common stock, interest rates, expected term and estimated volatility. The enterprise value was determined using a combination of a discounted cash flow methodology and a publicly traded company market multiple methodology. The discounted cash flow methodology used an estimated weighted average cost of capital to discount the estimated future cash flows of ViSalus to its present value. The publicly traded company methodology used various market multiples with consideration for comparable operating revenues and earnings. The initial recording to fair value in December 2012 was recorded as a charge to retained earnings since no proceeds were received at the time of issuance. The difference in recorded value at June 30, 2014 and its previously recorded fair value at December 31, 2012 represents an accretion adjustment to be recorded on a prorated basis through December 2017 to arrive at the fully accreted value upon maturity.

The acquisition of ViSalus involves related parties, as discussed in Note 12 to the Consolidated Financial Statements. In addition to Blyth, the other owners of ViSalus include its three founders (each of whom currently owns approximately 4.6% for a total of 13.7%) (“the founders”), Robert B. Goergen (the Company's Chairman of the Board, who owns 1.8%), Robert B. Goergen, Jr. (President and Chief Executive Officer of the Company, who owns 0.1%), Todd A. Goergen (ViSalus's Chief Operating Officer, who owns 0.6%), and a small group of employees and others who collectively own approximately 2.9% of ViSalus. The Company's initial investment in ViSalus of $13.0 million was paid to ViSalus ($2.5 million), Ropart Asset Management Fund, LLC and Ropart Asset Management Fund II, LLC (collectively, “RAM”) ($3.0 million), and each of the three founders ($2.5 million each). The Company's second investment of $2.5 million was paid to RAM ($1.0 million), each of the three founders ($0.3 million each) and others ($0.6 million in the aggregate).  The Company's third investment in ViSalus of $28.7 million in cash and the issuance of 681,324 unregistered shares of common stock was paid to RAM ($11.0 million in cash), the three founders (a total of $10.1 million in cash and the issuance of a total of 681,324 unregistered shares) and others ($7.6 million in cash, in the aggregate). The Company's fourth investment of $60.5 million was paid to Robert B. Goergen ($5.1 million), Robert B. Goergen, Jr. ($0.2 million), Todd A. Goergen ($1.7 million), each of the three founders ($13.3 million each) and others ($13.6 million in the aggregate). Mr. Goergen, the Company's Chairman of the Board, beneficially owns approximately 36.0% of Blyth's outstanding common stock, and together with members of his family, owns substantially all of RAM.

On April 1, 2014, ViSalus entered into an agreement to acquire the remaining 50% interest of a healthy snack manufacturer it did not already own for $250,000, bringing the total acquisition cost to $0.5 million. The purchase agreement also provides for a payment of contingent consideration to the former owner based on gross profit from product sales over the next 26 months. The total purchase price inclusive of the expected payments to be made for product sales will be approximately $0.7 million. The difference between the estimated purchase price and the net assets acquired was recorded as goodwill within the Health & Wellness segment. Financial results of the healthy snack manufacturer prior to the acquisition and for interim periods subsequent to the acquisition are not significant.