One of the leading weight-loss brands on the planet, Weight Watchers International, Inc. (NYSE:WTW), has seen a major reduction in its share price over the past couple of months, with its shares crumbling by 80.84% throughout the year. Nor did the loss of share value appear to waning; we reported on Thursday that Weight Watchers was one of the worst performing stocks of the day, losing 12.71% of its already-battered value. However, things have changed this morning, as a takeover rumor from an activist hedge fund has helped the company’s stock jump 23% in the morning session. According to the New York Post, an activist hedge fund investor is in talks with possible partners to make an offer for the weight management firm. The unidentified activist hedge fund is said to have bought $144 million worth of senior loans of Weight Watchers International, Inc. (NYSE:WTW), which are due in April 2016.
According to the undisclosed sources, the current evaluation along with outstanding debt puts a $2 billion price tag on the company. However, it might take some efforts to convince the current majority stockowner of Weight Watchers International, Inc. (NYSE:WTW), Artal Group, to sell, considering that the Luxembourg group purchased a 51% stake for $224 million in 1999 and it has already bagged in excess of $3.8 billion as of now. It is important to consider that the weight reduction company has $2.1 billion in junior debt due in 2020 and this deal might persuade its junior lenders to go for the deal.
The entrance of an activist investor in any firm usually triggers growth in share prices, but in this case it’s the possibility of a takeover and the likely premium on the shares that would entail, that have investors excited this morning. Despite its dismal performance in its most recent quarter, and a tumbling share price, this deal represents an investment opportunity for new investors as well as the existing shareholders of Weight Watchers International. Smart money shareholders had a very negative outlook of Weight Watchers International, Inc. (NYSE:WTW) at the end of the first quarter, with 18 investors having aggregate investments of $28.73 million against holdings of $195.94 million from 22 hedge fund investors at the end of 2014.
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The takeover rumors are likely to push the shares even higher over the next few days. Insiders at Weight Watchers International, Inc. (NYSE:WTW) are bullish on the company’s shares, with Denis Kelly, Director at Weight Watchers Inc., purchasing 1,000 shares of the company on May 12, 2015.
Let’s take a look at the hedge fund sentiment for the shares of Weight Watchers Inc at the end of the first quarter.
How have hedgies been trading Weight Watchers International, Inc. (NYSE:WTW)?
Heading into the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 18% from the fourth quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings significantly.
When looking at the hedgies followed by Insider Monkey, Philip Rosenstrach’s Pomelo Capital had the most valuable position in Weight Watchers International, Inc. (NYSE:WTW), worth close to $6.3 million and 900,000 shares, amounting to 3.4% of its total 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $4.4 million position holding 626,860 shares; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds with similar optimism comprise Anand Parekh’s Alyeska Investment Group, and John Burbank’s Passport Capital.
Judging by the fact that Weight Watchers International, Inc. (NYSE:WTW) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies who sold off their entire stakes heading into the second quarter. It’s worth mentioning that Conan Laughlin’s North Tide Capital sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $42.2 million in stock. Stephen DuBois’s fund, Camber Capital Management also cut its position, of about $28.5 million worth of shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by four funds heading into the second quarter.
If a sale materializes between the activist investor and the majority shareholder of the company, it could create very big shareholder value. As such, and given its rock-bottom price anyway, we feel safe in recommending a buy of Weight Watchers at its current price.
Disclosure: None
