Weight Watchers Soars On Reports of Activist Interest

Jul 6 2015 | 12:38pm ET

The shares of struggling diet company Weight Watchers International gained the most since 2011 on media reports that an unidentified hedge fund is considering a takeover offer for the company.

According to a report first published by the New York Post and picked up by a number of financial media outlets, an activist hedge fund has purchased the majority of the company’s remaining $144 million in senior loans due in April 2016, and has embarked on discussions with potential partners about making an offer to buy the company.  

The senior debt position reportedly accumulated by the hedge fund puts it in the position of controlling the first lien on Weight Watchers assets, according to the report. This may become significant if Weight Watchers, which has only $130 million in the bank, is unable to meet the April 2016 maturity date, and could but the fund in the drivers’ seat for any restructuring. 

The firm also has $2.1 billion due in 2020, although it is subordinate to the April 2016 tranche. This debt is trading for roughly 50 cents on the dollar, which means holders would have a lot of incentive to work a deal out with the owners of the company’s senior debt.

Including discounted debt, the Post pegs the total takeout price for the company to be around $2 billion, citing an unnamed source claiming a potential offer of twice the $4.09 closing price last week.  

Luxembourg-based Artal Group owns approximately 51% of Weight Watchers from a 1999 purchase for approximately $224 million. 

Weight Watchers has struggled in recent years as free online and mobile apps that help consumers diet and keep track of calories have proliferated, cutting into the company’s key revenue segments. Sales fell more than 14% in the last fiscal year and profits have been cut in half. 

Despite its travails, 52-year old Weight Watchers remains the leading weight-loss brand in the world, suggesting the price may have hit a level low enough where turnaround/takeover funds see some appeal.

The rumor sent Weight Watchers stock soaring on Monday, at one point up nearly 30% before settling back to a intraday range around $4.90. 


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