NEW YORK, Oct. 14, 2014 /PRNewswire/ -- Clinton Group,
Inc., which together with its affiliates and funds ("Clinton
Group"), a long-term owner of equity interests in Nutrisystem, Inc.
(Nasdaq: NTRI) ("Nutrisystem" or the "Company"), today announced
that it has sent a letter to the Chief Executive Officer of
Nutrisystem calling for a sale of the Company.
"We have been patient during the turnaround over the last few
years and commend the management team, led by Dawn Zier, on their achievements to date," said
Joseph A. De Perio, Senior Portfolio
Manager of the Clinton Group. "However, the stock price fails to
represent the progress to date and significant upside of
Nutrisystem brand. Over the past year, we have had several
conversations with Ms. Weir regarding a larger scale stock buyback
and an increase in the dividend. Given the continuation of the
market's divergent view, we are now inclined to push the Board of
Directors to take steps to maximize shareholder value in a sale
process."
A complete copy of the Clinton Group's letter is below:
About Clinton Group, Inc.
Clinton Group, Inc. is a diversified asset management firm that
is a Registered Investment Advisor. The firm has been investing in
global markets since its inception in 1991 with expertise that
spans a wide range of investment styles and asset classes.
[Clinton Group Letterhead]
October 14,
2014
Ms. Dawn Zier
Chief Executive Officer
Nutrisystem, Inc.
600 Office Center Drive
Fort Washington, PA 19034
Re: The Future of
Nutrisystem, Inc.
Dear Ms. Zier:
I write on behalf of Clinton Group, Inc., the investment manager
to several partnerships and funds ("Clinton Group") that
collectively own a significant stake in the common stock of
Nutrisystem, Inc. ("Nutrisystem" or the "Company"). We have owned
the stock for more than three years and wrote you, just a little
over one year ago, to express our enthusiasm for all that you are
doing to turn around the business to create value for
stockholders.
We are no less excited today about the opportunity to create
shareholder value at Nutrisystem. You and your team are on target
to grow EPS by 60% year-over-year as we understand it and customer
counts, revenue, gross margin, operating margin, web conversion,
marketing efficiency and renewal rates are all improving. We
believe on the current pace you can achieve, as we wrote last year,
more than $100 million in adjusted
EBITDA for calendar 2016, which is approximately equal to the
EBITDA achieved on average between 2006 and 2010.
In fact, with your promising initiatives in the retail channel
(with Wal-Mart, Target and Sam's Club), with the NuMI mobile app
for the do-it-yourself dieter, and with the entering into the fresh
diet food program with "Simply Fresh," the Company has more legs to
its stool today than it ever has had and more opportunity,
therefore, to vanquish the performance of even its previous,
record-setting years.
As we expressed to you in the past, we have every confidence in
you and your team as operators. We note that you have rightly been
pleased with the performance of the Company in each of the past
three quarters. All three involved exceeding the performance of the
prior year and the Company's guidance to investors.
That said, the stock price performance indicates a divergent
view to the Company's progress in the past two quarters. While
operating performance has been commendable, the Company has not
been sufficiently attentive to its status as a public company nor
provided shareholders with the information required for good
investment decision making.
Thus, after two of those quarters' earnings announcements, the
stock was extremely volatile, dropping more than 10% in a single
day. Such volatility is the hallmark of a public company that is
not setting investor expectations effectively. Such a public
company can be a hazard to its owners even as fundamental
performance improves; the gyrations in stock price repel some
otherwise natural owners (leading to an artificially low valuation)
and others are so fearful of being whipsawed that they exit early,
own less than they otherwise would and are tentative buyers. As
importantly, such volatile stocks are a haven for short sellers. We
have no doubt that these effects are and will continue to dampen
the valuation Nutrisystem receives in the public market.
In previous communications, we suggested that reducing the float
in a stock buyback and maintaining the dividend on a per share
basis were both neutral to annual cash flow and would be effective
to create shareholder value. Following our letters on this this
subject in late Q1, shareholders responding by bidding the stock
higher in support of our suggestions. Furthermore, in examining
equity research models for 2015, we believe there is room to
increase the dividend by 10% while maintaining the same historical
payout ratios.
We stand by our suggestions to do a leveraged buyback or
increase the dividend today, but recognize that such transactions
may not be enough to cure the valuation discount in the equity
markets. We believe therefore the Board should consider carefully
whether Nutrisystem should remain a public company at all. We are
aware of private equity firms that are interested in discussing a
buyout in which the current management team would remain in place
but the Company would be privately held.
Given the Nutrisystem's superior brand and cash flow prospects
for the business, we believe such a going-private transaction could
garner a substantial premium for the public market investors while
affording the private equity buyer of Nutrisystem attractive
returns. We have modeled that a private equity firm could pay
$23 per share for Nutrisystem (a 50%
premium to today's prevailing prices) and still reasonably expect
to earn an IRR above 20%.
In the meantime, we urge the Company to use its cash to buy back
its own stock at these attractive prices. Obviously, the more stock
that you buy at these prices, the more a private equity buyer can
pay in a going-private transaction for the remainder of the
outstanding stock.
Dawn, we believe you are executing the turnaround of Nutrisystem
exceedingly well and are confident a private equity buyer would be
impressed by the progress you have made in a short time. As you
know, all of the meaningful operating metrics are improving and
doing so rapidly.
Fundamental performance, however, may not be enough to garner a
fair price for the stock. Volatility matters. We believe the
Company would be better owned privately by a knowledgeable and
deeply involved owner who would not experience the gyrations of
valuation implied by the public market stock price.
Best regards,
//ss//
Joseph A. De Perio
Senior Portfolio Manager
cc:
Board of Directors, Nutrisystem, Inc.
SOURCE Clinton Group, Inc.