G Asset Management put out a press release announcing 2 different offers for different parts of Barnes & Noble (BKS):
…a proposal to acquire 51% of Barnes & Noble, Inc., valuing the company at $22 per share, a ~30% premium to the current market price.
Alternatively, GAM has proposed to acquire 51% of the Nook segment, valuing the segment at $5 per share. GAM stated in its proposal that it was extremely confident that if the Nook segment is separated from the profitable retail and college business, substantial shareholder value would be created.
Moody’s expects a sharp drop in 2014 revenue and EBITDA to about $1.4 billion and $325 million, respectively, even with management plans to initiate cost reduction programs. As a result, debt to EBITDA (after Moody’s standard adjustments) may increase to above 7 times, which is high for the B1 CFR. Moody’s anticipates Weight Watchers will remain profitable but down considerably from earlier expectations and generate at least $100 million of free cash flow. Lowered free cash flow and in Moody’s view financial covenant constraints will limit Weight Watchers access to about $50 million of its revolver, so the Speculative Grade Liquidity rating was revised to SGL-3. Liquidity is considered adequate.
The negative ratings outlook reflects Moody’s concern that evidence of business stabilization may not appear in 2014, which could imply further deterioration of financial leverage and cash flow.
The “Debt” section of our notes always assumed Weight Watchers would only have access to $50 million of revolving credit. Interest costs increase 0.25% ($6 million a year) when rated below Ba3 by Moody’s (B1 is lower) and Standard & Poor’s. See the debt section of our notes for details.
Separately, Morningstar downgraded the “moat rating” for Weight Watchers from “wide” to “narrow”. You can find our discussion of free apps (the reason for Morningstar’s downgrade) near the end of the notes PDF.
I promised I would tell you if Quan or I changed our position in Weight Watchers. Today, Quan added to his position.
Today, I bought Towns Sports International (CLUB). My average cost was $8.77 a share. I put 19% of my portfolio in the stock. This is my first stock purchase since Weight Watchers (WTW) in August 2013. I am now 100% invested in stocks.
A lot of people emailed me about Weight Watchers (WTW) after the company reported earnings and the stock dropped about 25% last week. Some of the people asking about Weight Watchers were subscribers to The Avid Hog. Others were not. For the first few issues of The Avid Hog (including the issue in which we picked Weight Watchers) we did not put out a “Notes” PDF with the issue.
Since a lot of people said they were “rethinking the thesis” or “considering selling” or “thinking about doubling down” on Weight Watchers at today’s price, I thought we should post some items with information that might be useful.
Weight Watchers is down 49% from where Quan bought it, 44% from where I bought it, and 35% from where we picked it for The Avid Hog. Quan and I still own the stock. We have no plans to sell it. We’ll let you know if that changes.
The notes have been updated to reflect the most recent (much lower) stock price and to discuss the 3 topics most often asked about in emails: 1) Debt 2) Free Apps 3) Artal.
If you want to know our thoughts on the company, please read the “Notes” above. They capture our thinking better than I could in a blog post. For information about Weight Watchers’s debt please read the “Debt” page of the notes. You should also read the actual 8-K explaining the credit agreement. For management’s thoughts on the company and the “turnaround plan” please read the Investor Day Presentation and either listen to the last 2 earnings calls or read the transcripts. You can find them on the company’s website, at earningscast.com, at Seeking Alpha, etc.
Like I said, if Quan or I change our positions in Weight Watchers in any way – we will update you the moment we do so.
