The fitness industry has witnessed a lot of innovation in recent times as companies strive to cash in on the growing penchant for physical wellness among Americans, especially the youth. Tivity Health (TVTY), a leading provider of fitness and weight-loss programs, is trying to set a new trend by including dietary supplements and health foods to its services.
In a move that is expected to create significant shareholder value, Tivity this week agreed to acquire Nutrisystem (NTRI), a provider of packaged diet foods, for $1.3 billion. The $47-per share deal price represents a reasonably good valuation. While ensuring annual cost savings, the acquisition is expected to be accretive to Tivity’s earnings within two years after the completion. Moreover, the projected improvement in cash flow, from the positive synergies, will strengthen its balance sheet.
“Tivity Health has the opportunity to accelerate its already impressive growth with the addition of Nutrisystem,” said Tivity CEO Donato Tramuto.
The estimated improvement in cash flow, from the positive synergies, is expected to strengthen the company’s balance sheet
The market witnessed hectic activity Monday morning when Nutrisystem shares gained about 31% in premarket trading. Hovering near the $45-mark, the stock recouped most of the losses it suffered since the beginning of the year. It had been keeping a low profile after retreating from the peak last year.
Meanwhile, the news triggered a selloff and Tivity shares lost about 34% soon after trading started. The stock had gained about 12% since the beginning of the year and maintained a steady uptrend since mid-October after hitting a one-year low.
Maybe it is the first time customers and partners are being offered nutrition, fitness and social engagement solutions under a single brand. The health food portfolio of Nutrisystem will be incorporated into the various fitness programs of Tivity, including SilverSneakers and Prime Fitness. After integration, as much as 87% of the new entity will be owned by the Tivity shareholders.
“We believe combining our two companies will create entirely new value propositions for our health plans, fitness partners, members and consumers,” added Tramuto. The transaction, to be financed with existing cash-on-hand and term loan, is tentatively scheduled to close in the first quarter of next year.
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