Natural Foods Merchandiser

AOL founder strikes a powerful pose with Gaiam

Can mainstream media attract a green audience? Two business titans are banking on it.

Steve Case, co-founder of America Online and former chairman of AOL Time Warner, has teamed up with Jirka Rysavy, founder and chief executive officer of Broomfield, Colo.-based Gaiam, best known for its line of yoga mats and fitness DVDs.

Case said Aug. 4 that he would acquire a 12.5 percent stake in Gaiam for $20 million. If the deal works out, he said he holds options to purchase enough shares to make his stake equivalent to Rysavy?s.

In turn, Gaiam will take a $7 million interest in Lime Media, a ?multi-platform television and radio media network? founded by Case that focuses on the LOHAS (lifestyles of health and sustainability) market. Lime Media is available in 6.5 million American homes through 2009.

?This is an alliance that will likely grow over time,? Case said.

Gaiam has also made a $40 million bid for GoodTimes Entertainment, a video catalog company. If this bid is successful, the company said the purchase would make Gaiam the biggest direct distributor of home media in the country, with more than 40,000 retailers, 20 million catalogs and 7 million direct customers. It will have the sixth-largest market share for nontheatrical DVDs, according to ACNielsen?s Videoscan.

GoodTimes? video catalog contains more than 2,000 items, including such fitness programs as The FIRM, TaeBo, Richard Simmons and yoga tapes emceed by hip-hop entrepreneur Russell Simmons.

Lime owns a programming catalog that includes yoga classes and spirituality programs with Deepak Chopra.

?Our focus is in consumer businesses where there is the possibility of profound change,? Case said on a conference call. Case said he expects both profound individual change for consumers and profound, and potentially disruptive, change in a business segment on the order of what America Online did for communications.

Through Revolution LLC, an investment firm he founded in April with $500 million of his AOL fortune, Case has recently focused his business acumen on resorts, wellness and healthy living.

And in July, Case announced the formation of another venture, Revolution Health Group, whose investors include former Secretary of State Colin Powell and former Fortune 500 CEOs Frank Raines (of Fannie Mae), Jim Barksdale (of Netscape) and Steve Wiggins (of Oxford Health Plans).

Case has said RHG will build ?a first-class, consumer-driven health care company,? but so far no details have been announced, although he told USA Today that collecting data about health conditions, procedures and costs would empower patients to become smarter consumers.

Other recent deals
Atkins Nutritionals filed for Chapter 11 bankruptcy reorganization Aug. 2 and says it will emerge from bankruptcy protection a smaller company focused on weight-loss food products such as energy bars and shakes.

Flying high in early 2004, when 9 percent of Americans claimed to be counting carbohydrates, Atkins last year lost almost $341 million. Shortly after Dr. Robert Atkins died in 2003, his estate sold the food manufacturer to an investment group that added $300 million in debt to its balance sheet.

?There are companies I call, ?Good Company, Bad Balance Sheet,?? said Pat Turpin, a partner in Bayside Ventures, an investment firm focusing on emerging natural and organic food companies. ?Then there?s damaged brands. I would put Atkins in that category.?

In addition, Scharffen Berger Chocolate Maker was acquired by The Hershey Co., although the $4 billion confectioner says it will do little to change the boutique chocolatier based in Berkeley, Calif.

?The Scharffen Berger name will continue, and Hershey looks forward to using and growing the Scharffen Berger brand,? said Jim Harris, chief operating officer of Scharffen Berger. ?We?re all thrilled with the partnership.?

Natural Foods Merchandiser volume XXVI/number 9/p. 24

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