Weight management product and service company Nutrisystem
(NTRI 44.22, +10.01, +29.28%) moves to multi-month highs in reaction to news out
this morning that health improvement program company Tivity Health (TVTY 28.83, -11.78, -29.01%) will acquire NTRI for an enterprise value of $1.3 bln and an
equity value of $1.4 bln, or approximately $47.00 per share, in a deal expected
to close in the first quarter of 2019.
The Combined Company
In combination, the two companies will be well-positioned to address weight management. The diversification of Tivity Health's portfolio and the increased scale that the acquisition provides are intended to benefit all the company's stakeholders and clients – including health plan providers, fitness partners, members, and consumers – as these expanded portfolio offerings support healthier lifestyles and can lower medical costs. This transaction will also create value for Tivity Health's shareholders through the addition of a new independent revenue stream, cost and revenue synergies, and notable potential growth opportunities.
Upon closing of the acquisition, Tivity Health expects to maintain all of Nutrisystem’s existing brands, as well as its Fort Washington, PA location. Dawn Zier, the current CEO of Nutrisystem, will become President and COO of Tivity Health, reporting to Tivity Health CEO Donato Tramuto. She will be responsible for Tivity Health's nutrition and fitness divisions and will join the company's Board of Directors.
Under the terms of the merger agreement, each outstanding share of Nutrisystem stock will be exchanged for $38.75 in cash and 0.2141 shares of Tivity Health common stock. Upon closing, Tivity Health shareholders are expected to own approximately 87% of the pro forma company on a fully diluted basis.
Tivity Health will finance the cash portion of the acquisition with fully committed term loan financing from Credit Suisse and with existing cash on hand. Upon the transaction’s closing, Tivity Health's pro forma net leverage is expected to be approximately 4.4x, including the benefit of identified cost synergies. Tivity Health expects to reduce net leverage to less than 3.5x by the end of 2020 and to less than 2.5x by the end of 2021.
The implied stock consideration of $8.25 per Nutrisystem share is based on the volume-weighted average price of Tivity Health's stock for the 10 days ended December 3, 2018. The implied transaction consideration of $47.00 per share represents a 30% premium based on the volume-weighted average price for Nutrisystem over the last five trading days. Based on the financial results for both companies for the 12 months ended September 30, 2018, pro forma revenue would have been approximately $1.3 bln, net income would have been approximately $135 mln and adjusted EBITDA would have been approximately $223 mln. Tivity also anticipates double digit accretion in 2020 with annual cost synergies between $30-35 mln.
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