Health Sciences intends to move into healthy teas

By staff reporter

- Last updated on GMT

Related tags Chief executive officer Tea

Health Sciences Group is intending to acquire specialty tea and
food company Kalahari - the first acquisition since its focus shift
from ingredients to branded finished foods and an indication of its
new, market-driven strategy.

HSG's was previously active in the ingredients market and bought up a number of interesting technologies in the past two years, including the patented process for hydrocolloid sponges for use in functional food products, the technology behind an antioxidant powder from apple peel, and cholesterol-lowering Sequesterol from kelp.

But while it is still planning to make the most of the opportunities these afford (particularly sequesterol for heart health, through infomercials), it became clear that a change in direction was taking place earlier this year, when founder Fred Tannous stepped aside to become chief financial officer. Steve Gold, a marketing expert, moved into the chief executive officer's seat.

"Being strictly an ingredients purveyor was limiting,"​ Tannous told in August. "Margins were eroding."

Today's news of the signing of a letter of intent is the first firm evidence of HSG's new strategy, and reflects Gold's prior experience in the tea market as CEO of The Republic of Tea.

Although Kalahari's products already have a retail base in over 5,000 stores in the US and is said by HSG to "command a leading share of the Red Tea market"​, Gold plans to give the product line an image overhaul and create new marketing and licensing channels for it.

His enthusiasm is based on recent research into the benefits of tea on health, coupled with market research predicting that the US tea market will reach $10m by 2010, with annual growth of specialty teas expected to grow 20 per cent per year (Sage Group).

"With research touting its high level of antioxidants and related good health benefits, I believe red tea is poised for mainstream consumer acceptance and will become the next hot tea trend,"​ said Gold.

Red tea is also known as Rooibus, an African plant with a long history of human consumption.

It is not known whether HSG has plans to extend the research base behind red tea, but the indications are that this may not be a great priority. Tannous said the philosophy regarding R&D as "buy it rather than build it"​ and the company will be doing clinical trials or studies "to a much lesser extent"​ in the future.

The value of the proposed deal has not been revealed, but it consists of shares of HSG common stock to be paid subject to a three-year earn out schedule.

Closure, anticipated for November 30, is subject to certain conditions - including HSG finding at least $1m in funding and satisfying due diligence requirements.

"There can be no assurance that the acquisition will be consummated,"​ said the company.

Beyond acquisitions, the company has also hinted that it will be launching new finished products of its own.

"The new products that are coming out are going to create a totally new category,"​ said Gold. "They're not going to follow the curve, they're creating the curve."

HSG is not a company that shies away from dramatic change: it has changed its name three times since it was originally incorporated in 1996 at Centurion Properties Development Corporation.

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