In a new filing with the Securities and Exchange Commission, Parag Vora‘s HG Vora Capital Management issued a press release announcing that HG Vora together with PW Partners Atlas Funds have nominated six independent directors to be elected to the board of Town Sports International Holdings, Inc. (NASDAQ:CLUB) at the next meeting of shareholders. HG Vora and PW Partners Atlas Funds have formed an activist group and together they own a total of 6.37 million shares of Town Sports International, the stake amassing 26.2% of the company. HG Vora holds around 3.88 million shares from the aggregate position, equal to 15.9% of the company’s common stock.
HG Vora holds a concentrated equity portfolio, worth around $880 million that is primarily invested in services companies. The fund is betting big on American Realty Capital Properties Inc (NASDAQ:ARCP) and Pinnacle Entertainment, Inc (NYSE:PNK), the stakes in which amass together more than 30% of the equity portfolio. However, as HG Vora was raising its positions in both companies in 2014, the stock of American Realty dropped by 24% over the last 52 weeks, while Pinnacle Entertainment’s stock fell by 9%.
In Town Sports International Holdings, Inc. (NASDAQ:CLUB), HG Vora initiated a stake at the end of April 2014, intially holding 1.3 million shares. Later on, the stake has been increased and in October the fund formed an activist group with PW Partners Atlas Fund in order to engage together in discussions with the company’s management and board of directors regarding strategies to increase the shareholder value of Town Sports International.
So, with nominating candidates to be elected to the board of directors, both HG Vora and PW Partners take the next step regarding their investment in the company. In their press release, the investors said that they consider that Town Sports International Holdings, Inc. (NASDAQ:CLUB) needs to “significantly revamp its board of directors” in order for changes required to increase the shareholder value to take place. The candidates nominated by the activist group include: Glenn Colarossi, Mark A. McEachen, Jeffrey C. Neal, Thomas W. Plummer, Patrick Walsh, and L. Spencer Wells. The candidates, according to the press release, are professional with expertise in the fitness industry and corporate finance.
Moreover, the funds decided to nominate their own slate of directors after the company has not engaged in discussions with them regarding some of the proposals to increase shareholder value and instead adopted a so-called ‘poison pill’. Town Sports International Holdings, Inc. (NASDAQ:CLUB) has adopted a stockholder rights plan that is meant to prevent a hostile takeover, as a response to HG Vora and PW Partners’ increasing their aggregate stake. The rights plan, however, will not prevent the investors from initiating a proxy fight.
So far, HG Vora and PW Partners’ plans to replace the board might be successful as Town Sports International Holdings, Inc. (NASDAQ:CLUB) has seen its stock losing more than 54% over the last 52 weeks. The decline came on the back of a decline in revenues and earnings as the company posted revenues of around $113 million for the third quarter of 2014, down from $117 million a year earlier and turned to a net loss of $0.04 per share, from a profit of $0.11 per share. In addition, the company’s EBITDA dropped to $15 million, from $22 million. In this way, the stock underperformed the leisure industry that gained 11% over the last year.
Moreover, as the Town Sports International Holdings, Inc. (NASDAQ:CLUB) has been losing ground, it has seen some investors moving away from the stock. As our data show, at the end of September 10 funds, among those that we track, reported long positions in the company, down from 15 funds in the previous quarter. Aside from HG Vora, Thomas Steyer’s Farallon Capital owns a significant position in Town Sports International, which amasses 4.06 million shares as of the end of the third quarter, while Jim Simons’ Renaissance Technologies disclosed holding 838,000 shares in its latest 13F filing. However, while the stake in the company amasses almost 3% of HG Vora’s equity portfolio, Farallon and Renaissance commited less than 1% of their 13F portfolios to the investment.
Disclosure: none
