Fitness financials: Town Sports moves forward with IPO, plus adidas/Reebok, Costco, Wal-Mart

Town Sports moves forward with IPO
Town Sports International is reportedly moving ahead with its IPO following unsatisfactory bids from a number of private-equity firms, including Leonard Green & Partners, Bain Capital, MidOcean Partners and Spectrum Equity Investors. The bids were eventually rejected because the company’s owners, led by private-equity firm Bruckmann, Rosser, Sherrill & Co., sought a higher price. In June, Town Sports filed to raise $172.5 million in an IPO underwritten by Goldman Sachs, Credit Suisse First Boston and Deutsche Bank. At the same time, the company started to seek a private buyer for its 140 health clubs, two-thirds of which are in New York City under the New York Sports club banner. Town Sports has applied to list its shares on the Nasdaq under the symbol “CLUB.”

adidas jumps anti-trust hurdle in bid for Reebok, upgraded by broker
adidas-Salomon AG (ADS.DE) is one step closer to owning Reebok International (NYSE: RBK). The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired, and as a result, no further anti-trust regulatory review will be necessary in the United States.

On Aug. 3, the board of directors of adidas and Reebok unanimously approved the definitive agreement under which adidas would acquire all of the outstanding shares of Reebok for $59 per share in cash. The transaction value is approximately Euro 3.1 billion (USD $3.8 billion) including the assumption of Reebok’s net cash position.

The companies believe that the transaction will close in the first half of 2006.

The news lifted adidas shares almost 2 percent to 147.02 euros (USD $178.13) on the XETRA Exchange, making it the top gainer in the DAX benchmark index.

On Oct. 6, Goldman Sachs upgraded adidas to “outperform” from “in line,” saying it believes the acquisition of Reebok will add to earnings per share by 20 percent to 27 percent in 2007. It said that if cost synergies prove greater than the 125 million euros (USD $151.4 million) outlined by management, EPS accretion could reach 50 percent.

Since the deal was announced, Goldman noted that adidas shares have decreased about 9 percent, suggesting investors have concerns about the transaction and the fundamentals of the two companies in light of the strong order growth reported by Nike last month. Goldman acknowledged that Reebok has problems but said the concerns are overdone and that it views the deal as positive for adidas shareholders financially.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Oct. 6.)

Costco reports Q4 earnings
Costco Wholesale (Nasdaq: COST) said higher sales of discount items combined with a favorable tax rate helped push its profit up nearly 20 percent in its fourth quarter. Costco earned $354.7 million, or $0.73 per share, up from $296.8 million, or $0.62 per share, a year ago. A tax benefit and a lower tax rate — 28.9 percent versus 37 percent — boosted earnings for the latest quarter by $0.07 a share. Excluding those items, net income would have been $320.2 million, or $0.66 per share.

Wal-Mart net sales up 9.7 percent
September net sales for Wal-Mart Stores (NYSE: WMT) were up 9.7 percent to $28.2 billion, from $25.7 billion last year. The Wal-Mart Stores division had an 8.4 percent increase — $18.6 billion versus $17.1 billion last year. Total same-store sales were up 3.8 percent, while the Wal-Mart division was up 2.6 percent. The retailer estimates that October sales in the United States will be in the 2 percent to 4 percent range.

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