Nutrisystem Investors Sue for Details on $1.3B Sale to Health Company
In an 18-page complaint, shareholders Thursday questioned analyses by Nutrisystem's Evercore Group financial advisers and said that the cash-and-stock deal, announced in December, had undervalued the company.
January 10, 2019 at 02:52 PM
3 minute read
Nutrisystem Inc. investors have sued the Pennsylvania-based diet and weight-loss company over its planned $1.3 billion sale to Tivity Health Inc., claiming that Nutrisystem brass has withheld key data ahead of a stockholder vote expected in the coming months.
In an 18-page complaint, shareholders Thursday questioned analyses by Nutrisystem's Evercore Group financial advisers and said that the cash-and-stock deal, announced in December, had undervalued the company. Though a date has not yet been set for a shareholder vote, Nutrisystem and Nashville, Tennessee, area-based Tivity have said they plan to close the merger in the first quarter of 2019.
“It is therefore imperative that the material information that has been omitted from the Proxy is disclosed prior to the Stockholder Vote so Nutrisystem stockholders can properly exercise their corporate suffrage rights,” plaintiffs attorneys from Gainey McKenna & Egleston and O'Kelly Ernst & Joyce said in the filing.
Tivity announced Dec. 17 that it would acquire Nutrisystem, which is headquartered in Fort Washington, Pennsylvania, in a deal that would expand its fitness and nutrition portfolio and better position it to offer weight-management services. Under the agreement, Nutrisystem investors would receive $38.75 in cash plus a portion of the new company's shares for their stock, though Tivity shareholders would own 87 percent of the combined company.
Tivity said it expects to maintain all existing Nutrisystem brands, which include the South Beach Diet and DNA Body Blueprint, as well as Nutrisystem's Fort Washington headquarters.
Plaintiff Melvin Klein, a Nutrisystem investor, said Evercore's analyses omitted key financial inputs, which led the firm to undervalue Nutrisystem's overall worth in materials that were submitted to the U.S. Securities and Exchange Commission earlier this week.
“The merger consideration is unfair because, among other things, the intrinsic value of the company is in excess of the amount the company's stockholders will receive in connection with the proposed transaction,” the complaint said. “It is therefore imperative that the company common stockholders receive the material information that defendants have omitted from the proxy so that they can meaningfully assess whether the proposed transaction is in their best interests prior to the vote.”
The two-count complaint alleges violations of the Securities Exchange Act and asks for for the merger to be postponed until the alleged deficiencies are cured. Should the deal be consummated before then, plaintiffs are seeking damages and any special benefits obtained by Nutrisystem's directors resulting from alleged breaches of their fiduciary duties.
A spokeswoman for Nutrisystem did not immediately respond Thursday to a call seeking comment on the lawsuit.
Klein is represented by Ryan M. Ernst of O'Kelly Ernst in Wilmington and Thomas J. McKenna and Gregory M. Egleston of Gainey McKenna in New York.
An online docket tracking service did not list counsel for Nutrisystem and its directors.
The case, captioned Klein v. Nutrisystem, has not yet been assigned to a judge.
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