Tivity Health Plunges With $1.3 Billion Nutrisystem Deal

(Bloomberg) -- Tivity Health Inc. agreed to acquire diet plan company Nutrisystem Inc. in a $1.3 billion cash-and-stock deal that sunk shares of the fitness and health improvement programs provider.

The transaction values Nutrisystem at about $47 a share including debt, representing a 30 percent premium based on the volume-weighted average price over the last five trading days, according to a statement on Monday.

Nutrisystem shareholders will get $38.75 per share in cash and 0.2141 Tivity shares. Existing Tivity investors will own about 87 percent of the combined company, with the remainder owned by current Nutrisystem shareholders.

Tivity shares, which fell as much as 36 percent, were down 32 percent percent to $27.42 at 1:21 p.m. in New York. That was the biggest intraday drop in more than a year. Nutrisystem shares gained 28 percent to $43.92 at 1:23 p.m., though they remained down 17 percent for the year as its diet products have faced increased competition.

Value Proposition

Tivity Chief Executive Officer Donato Tramuto stressed the long-term benefits of the pairing in an interview on Bloomberg Television Monday.

"You know what? I don’t make decisions based on one-day trading," Tramuto said, adding that the transaction creates a "huge value proposition."

Tivity and Nutrisystem have complementary business models, he said, as one focuses on exercise while the other stresses dieting. Together, they will be able to better combat obesity, the top cause of chronic health conditions, he said.

"We only control half of the problem when it comes to the obesity issue," he said. "Strategically, I believe it made a lot of sense."

Tivity will be able to offer Nutrisystem’s diet plans to participants in its senior citizen fitness program, he said. It will also be able to sell Nutrisystem products to people that use the approximately 16,000 locations in its fitness network, Tramuto said.

Tivity, with a market value of $1.6 billion, posted earnings excluding costs of $87 million for the year ended Sept. 30, on revenue of $593 million. Nutrisystem, with a market value of $1 billion, reported a profit of $56 million on $693 million in revenue.

Nashville, Tennessee-based Tivity expects to maintain all Nutrisystem brands, which include the South Beach Diet, as well as Nutrisystem’s Fort Washington, Pennsylvania, location. Tivity, which serves health plans, fitness partners and consumers, intends to incorporate Nutrisystem’s weight-loss regimens into its SilverSneakers, Prime Fitness, WholeHealth Living and flip50 programs.

Nutrisystem’s Chief Executive Officer Dawn Zier will become president and chief operating officer of Tivity.

Credit Suisse Group AG advised Tivity and Bass, Berry & Sims Plc served as legal counsel. Evercore Inc. worked with Nutrisystem and Davis Polk & Wardwell LLP provided legal advice.

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