According to the New York Post, beleaguered Weight Watchers International has at least one suitor.
The Post reported on Monday that knowledgeable sources say the weight-loss firm, which is down almost 90% in the last few months on slipping revenues and growing red ink, has attracted the attention of an activist hedge fund. The fund is apparently negotiating with potential partners about making an offer for the iconic firm, according to the sources.
Of note, the fund has recently bought most of the company’s remaining $144 million in senior loans due April 2016. The sources highlighted that Including debt, likely to be bought at a discount, the total price would probably be close to $2 billion.
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
“The hedge fund cornered most of the first lien,” one of the sources noted.
The $2 billion offer from the unnamed hedge fund and a partner would come close to doubling the current just-above $4 share price of Weight Watchers.
More on possible Weight Watchers buyout
Analysts point out that Weight Watchers has been very slow to react to changes in the weight-loss market such as Fitbit and Apple Watch, and is paying the price. Fewer and fewer people are signing up for its classes and buying its products.
Total active subscribers dropped by 17% from the year-earlier period in the first quarter. Even worse, active users in major market North America decreased 21% during the quarter, the firm noted.
“We were slow to react to the realities of the mobile revolution,” CFO Nick Hotchkin commented back in May. “Our systems were old and creaking and made us susceptible to free [diet] apps.”
That said, the half-a-century-old company remains the leading weight-loss brand in the world as it hosts 36,000 meetings a week worldwide..
Analysts also point out that, regardless of the current low price, convincing Artal Group, which has a 51% controlling stake in Weight Watchers, won’t be easy.
Artal Group paid a mere $224 million for Weight Watchers 16 years ago, and had seen $3.8 billion in profits as of late 2012. They are unlikely to part with their cash cow unless they get a fair price.
Keep in mind that the firm’s cash on hand has slipped to less than $130 million, not enough to pay the close to $144 million senior loan debt payment coming up in April of next year. The company does have access to a substantial revolving line of credit.
Weight Watchers International is up 26% in early market trading.