Fitness financial: Stumping and rhetoric on all sides of Bally issue

If you want entertainment, take a regular peek at the rhetoric flying around the Bally issue. We’re not convinced any of the parties involved meant for this tit-for-tat battle to be entertainment, but – com’ on – how can it not be?

We’ve got campaign letters from Liberation’s Emmanuel Pearlman, from Bally (one being an entire 48-page investor presentation), and from stockholder Pardus, which has been moaning and complaining about Bally but bought another 139,000 shares anyway. Go figure.

And with a Chancery Court in Delaware (a corporate court) as well as the U.S. District Court in Delaware now involved in the match between Liberation and Bally, the games are only getting more interesting. Bally and CEO Paul Toback have threatened to unleash a “management protection provision,” called a “poison pill,” if Liberation joins with other shareholders in voting to remove Toback from the board. Bally has also sued Liberation, claiming Liberation has a scheme to install new directors associated with Bally’s former CEO Lee Hillman. Bally also claims that Liberation has not been forthright in its association with Hillman. Pardus has also nominated three board members, two of which Bally has stated it is backing, while declining a third because Bally said he too is too connected with Hillman, which Bally said Pardus did not disclose.

Hillman has served as president of Liberation Investment Advisory Group and Liberation Management Services since 2004 and is currently a private investor and provides management consulting services to private equity funds and growth stage businesses. Pearlman, on the other hand, heads up Liberation Investments LLC and Liberation Investments Ltd. based in Los Angeles. Got those Liberations straight?

In February, Pearlman told SNEWS®, “Mr. Hillman is not associated with our company, Liberation Investment Group.” Pearlman was a long-time consultant to Bally during Hillman’s run there as CEO, and the duo is blamed partly by current management for the company’s current financial struggles.

In a Dec. 12 letter to Pardus, Bally wrote that it thought it was “inappropriate to negotiate the future of Bally Total Fitness through public rhetoric and repeated letters,” but then went out to continue the very public back-and-forth.  

In a Dec. 13 letter, Toback wrote:

“Notwithstanding the transformation that has occurred at Bally—and the fact that we’re on the right course—certain shareholders continue to criticize us in hopes that the turmoil they create will allow them or others to take control of this company. Ironically, they praise our results, yet they offer no industry experience, no knowledge of the company’s business or its issues, and they propose no plan.”

In a Dec. 14 letter, Pearlman wrote:

“As you may be aware, Liberation has long been concerned about the quality of corporate governance at Bally. We believe that stockholder democracy at the company would be bolstered by providing stockholders with a continuing voice in determining the tenure of Bally’s senior management team, including its chief executive officer and president. We expect that the existence of such a stockholder right would strengthen corporate governance by serving as a powerful incentive for members of senior management to pay careful attention to their fiduciary duties and focus keenly on maximizing value for all stockholders. The company is presently at a critical strategic crossroads. We are asking you to join us in increasing management accountability to stockholders by supporting our call for improved corporate governance. It is time for us to make these much needed changes.”

We can’t begin to summarize the goings-on, but click here to see the entire Bally list of filings at the Securities and Exchange Commission website. Just a little light reading to keep you busy over the holidays.

Meanwhile, Bally hired Robert Moschorak as managing director of franchise operations and development to help renew the company’s focus on franchising, which Bally stated plays a strong role in the overall turnaround plan. Talk about stepping in front of a speeding freight train in the dark…

By the way, Bally shares continued their downward trend, closing on Dec. 16 at 6.61 on a volume of 484,300, down from its 52-week high of 7.95 on Dec. 1.