Physicians Formula Holdings – FACE – To be Acquired by Swander Pace Capital

Nasdaq:FACE) and Swander Pace Capital announced they have entered into a definitive merger agreement under which affiliates of Swander Pace will acquire Physicians Formula. Under the terms of the merger agreement, Swander Pace, through its affiliates, will acquire all outstanding shares of the common stock of Physicians Formula for $4.25 per share in cash, or approximately $65 million. The per share price represents a premium of approximately 15% over Physicians Formula’s closing stock price on August 14, 2012 and a 21% premium to the Company’s one-month volume-weighted average price of $3.50 per share. The Physicians Formula’s Board of Directors, acting upon the unanimous recommendation of its Special Committee (the “Special Committee”) composed solely of independent directors, unanimously approved the merger agreement and resolved to recommend that the Company’s stockholders vote to adopt the merger agreement.

Upon close of the merger, Physicians Formula will be privately owned and will continue to be operated by the Company’s current management team and employees. Physicians Formula, founded in 1937 by Dr. Frank Crandall, will remain based in Azusa, CA.

“Our Board of Directors, following a thorough analysis by its Special Committee, has determined that this transaction offers the best value for our stockholders,” said Ingrid Jackel, Physicians Formula Chairwoman and CEO. ”We are pleased that Swander Pace has agreed to purchase our company. The firm has a record of success in acquiring and operating companies in the consumer space, and we believe they will add value to our business as we continue to successfully execute our growth initiatives.”

“The acquisition of Physicians Formula reinforces Swander Pace’s investment focus on lower middle-market consumer products industry companies,” said Mo Stout, a Swander Pace Managing Director. “Physicians Formula is a pioneer in the cosmetics industry, and we are committed to working with its management team on this next stage of growth and innovation for the company.”

The transaction, subject to various closing conditions including receipt of Physicians Formula stockholder approval, is expected to close later this year. This approval will be sought at a special meeting of stockholders. In connection with the transaction, certain stockholders of the Company who collectively own approximately 22% of the outstanding shares of the Company’s common stock have entered into voting agreements pursuant to which they have agreed to, among other things, vote their shares in favor of the Merger, subject to the certain exceptions.

Blackstone Advisory Partners L.P. is serving as exclusive financial advisor to the Special Committee, and has delivered a fairness opinion in connection with this transaction. Sheppard Mullin Richter & Hampton LLP is serving as legal advisor to the Company and Kirkland & Ellis LLP provided legal counsel to Swander Pace in connection with the transaction.

About Physicians Formula Holdings, Inc. – FACE

Physicians Formula is an innovative cosmetics and skin care company operating in the mass market prestige, or “masstige,” market. Under its Physicians Formula brand name, created in 1937, the Company develops, markets and distributes innovative, premium-priced products for the mass market channel. Physicians Formula differentiates itself by addressing skin imperfections through a problem-solving approach, rather than focusing on changing fashion trends. Currently, Physicians Formula products are sold in over 25,000 stores including those operated by Wal-Mart, Target, CVS and Rite Aid.

About Swander Pace Capital

Swander Pace Capital is a leading private equity firm specializing in investments in growth-oriented, lower middle-market consumer companies.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.