Fitness financial: Bally and stockholders spar in court, by letter, … let us count the ways

The business dealings of health clubs don’t often catch the fancy of mainstream media, but as Bally Total Fitness (NYSE: BFT) heads toward its annual stockholder meeting in late January, the sparring between the company and its stockholders has escalated to analysis by business and big-city rags.

Who wouldn’t find it fascinating that a health club chain would get into this kind of rather messy match with large stockholders that includes court challenges, letter-writing battles, demands that cut both ways, stockholder campaigning, SEC investigations, more court challenges, large sales of stocks by company executives, and even a request for a temporary restraining order by Bally against one insider stockholder. (A TRO? Against a stockholder?!)

Sit back, pop the top, relax, and let the games begin. The saga is so twisted, it’s more like a soap opera than your normal public company case. The charges, rulings and demands are likely to change any second, so to stay truly up-to-date, you too can let your email inbox fill with notices of SEC filings (42 alone since Dec. 1). In lieu of that, just click here to see the latest list of filings with the SEC. It looks as if Bally, CEO Paul Toback, and three large stockholder groups — Liberation, Pardus and Wattles — are all primed for the battle royale.

Meanwhile, to summarize the latest: Bally, which filed suit late Dec. 5 in the U.S. District Court, District of Delaware against Liberation headed up by Bally’s most-outspoken adversary Emmanuel Pearlman, won a ruling on Dec. 6 for a preliminary injunction hearing in January. Bally contends that Liberation has filed SEC statements that aren’t fully revealing, that it has conflicts because of its association with former Bally CEO Lee Hillman, that it may have played some role in Bally’s financial straits, that it has violated proxy rules, and that the company masquerades as an investor with all interests at heart.

In addition, Bally on Dec. 5 had requested the court issue a temporary restraining order to keep Liberation from starting its proxy battle using alleged misinformation and misleading voters and voting. A response is due by Dec. 19.

On Dec. 12, Liberation proposed to the court that it require Bally to be more specific in its charges of what Liberation allegedly has withheld as well as what Bally proposes to pursue at the January hearing. In addition, Liberation proposed both parties produce documents by Dec. 16 with the hearing to be set on Jan. 11 (two weeks before the annual stockholder meeting).

At the same time, Bally seems to be trying to work with another insider stockholder, Pardus Capital Management, to avoid the time, costs and distraction of a possible proxy battle at its annual meeting in January. Bally announced it intended to include Pardus’ two nominees for director, Charles Burdick and Barry R. Elson, on its slate for the meeting. However, Bally has declined to add another nominee to its slate — one from Liberation.

All of these shenanigans come on the heels of Bally’s release on Dec. 1 of both previously undisclosed as well as restated financial statements dating back to 2000. At that time, the company also discussed strategies “to increase shareholder value,” that included any number of options, including a sale or merger. Click here for that Dec. 2, 2005, SNEWS® story, “Bally looking to sell or merge amid flurry of restatement disclosures.” However, Toback declined additional details on any future actions. Since then, the sale of 1.2 million shares of Bally stock by company insiders, including Toback, has raised the ire and uncertainties of some.

SNEWS® View: We’re not sure at this point if the entire soap opera has taken on such a life of its own that it could simply overshadow other business and financial plans Bally could undertake. With the business and popular media focusing on the fight and the characters on each side — rather than the company’s reorganization — it seems to diminish the importance of the business at hand — Bally getting back on its financial feet. What company would want to merge, buy or get involved in any way, shape or form in these kinds of goings-on? There’d be so many wrinkles to iron, characters to appease, and skeletons to sweep out of the closet that any possible interested parties may just say, “Uh, no, thanks, but be in touch.” We don’t think Liberation wants to take down the company with its huge dollar interests also at stake, but that seems to be where this is headed.