Shares of Tivity Health (TVTY) are sliding after the company announced that it is acquiring Nutrisystem (NTRI) in a cash and stock deal valued at $47 per share. Despite the selloff, Piper Jaffray analyst Sean Wieland told investors that he believes the combination is “in the best interest of individuals struggling with health and well-being, and ultimately in the best interests of shareholders.”
TIVITY TO ACQUIRE NUTRISYSTEM: Tivity Health and Nutrisystem announced on Monday morning that they have entered into a definitive agreement under which the former will acquire all of the outstanding shares of the latter for a combination of cash and stock. Under the terms of the agreement, which has been unanimously approved by the boards of both companies, Nutrisystem shareholders will receive $38.75 per share in cash and 0.2141 Tivity Health shares for each share of Nutrisystem common stock. The transaction values Nutrisystem at an enterprise value of $1.3B and an equity value of $1.4B, or approximately $47 per share. The implied transaction consideration of $47 per share represents a 30% premium based on the volume-weighted average price for Nutrisystem over the last five trading days. Upon closing of the acquisition, Tivity Health expects to maintain all existing Nutrisystem brands, as well as Nutrisystem's Fort Washington, PA location. Additionally, Dawn Zier will become president and COO of Tivity Health reporting to Tivity Health CEO Donato Tramuto. She will be responsible for Tivity Health's nutrition and fitness divisions and will join the company's board. Upon closing, Tivity Health shareholders are expected to own approximately 87% of the pro forma company on a fully diluted basis. Tivity Health will finance the cash portion of the acquisition with fully committed term loan financing and existing cash on hand. The transaction is expected to close in the first quarter of 2019, subject to the approval of Nutrisystem shareholders, the receipt of regulatory approval and other customary closing conditions. In slides presented on the conference call discussing the acquisition of Nutrisystem by Tivity Health, the latter said it has identified approximately $30M-$35M in annual cost synergies, anticipated to be fully achieved on a run rate basis by 2021. One-time costs to achieve the synergies are expected to be less than $30M and Tivity sees achieving double digit accretion in 2020 and beyond.
PIPER SEES DEAL IN ‘BEST INTEREST’ OF SHAREHOLDERS: Commenting on deal announcement, Piper Jaffray’s Wieland argued that despite the selloff in Tivity’s shares, he believes the combination is "in the best interest of individuals struggling with health and well-being, and ultimately in the best interests of shareholders." The analyst also pointed out that cross-selling opportunity should drive revenue synergies. Tivity can cross-sell Prime to Nutrisystem’s members to accelerate Prime growth, Wieland contended, adding that Nutrisystem will also gain access to new selling channels, such as Tivity’s health plans, its 65-plus population, and Tivity’s existing 16K fitness club partners, who are increasingly getting involved in nutrition services. The analyst reiterated an Overweight rating and $44 price target on Tivity shares. Meanwhile, Nutrisystem was downgraded to Market Perform from Outperform by Barrington analyst Chris Howe, who pointed out that the stock has rallied 28%, reaching his prior 12-month price target of $44.
PRICE ACTION: In late morning trading, shares of Tivity have dropped almost 30% to $28.63. Nutrisystem shares, however, popped 29% to $44.20.