Sports Club Co., a Los Angeles-based fitness center operator that caters to celebrities, has been sued by a shareholder who says a $54.6-million buyout plan is unfair and is designed to mask accounting problems.
Shareholder Ronald Frankel's lawsuit contends a $3-per-share offer made in April by four investors who hold more than 80% of the stock is too low. Frankel filed his lawsuit Monday in Delaware Chancery Court in Wilmington.
Sports Club, which operates Sports Club and Spectrum Club in Southern California, and has centers in New York and Nevada, lists celebrities including Kim Cattrall and Kevin Bacon as customers.
The company went public in 1994 at $9 a share, but the stock sank almost immediately and was under $3 by 1996. The shares rebounded in 1997 and 1998, then plunged again as Sports Club's profit dwindled. The firm has lost money for the last three years, and the stock traded as low as $1.42 last year.
For The Record
Los Angeles Times Thursday July 03, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 36 words Type of Material: Correction
Sports Club -- An article in Wednesday's Business section about fitness center owner Sports Club Co. being sued by a shareholder incorrectly stated that the company operates the Spectrum Club in Southern California. It does not.
But Frankel said the buyout offer "does not represent the true value of the assets and future prospects of Sports Club" and "was instituted by the company's insiders in order to avoid disclosure of the nature and scope of the accounting irregularities perpetrated by the company's management," according to the suit.
Sports Club said last week it revised its financial statements for 2002 partly because auditors said it hadn't accounted properly for private training revenue. The firm said the restatement "does not result in any material change in the company's total revenue over time."
For the first quarter of this year, the company said it lost $4.2 million on sales of $32.4 million.
Sports Club Co-Chief Executive Rex Licklider, in an interview, said Frankel's suit lacks merit. "We're pretty confident the offer we made is fair and that there's nothing material about the restatement of our earnings," he said.
Sports Club "has been under some financial duress" with an expansion program and operating expenses in a weak economy, said Andy Liu, an analyst for Standard & Poor's in New York. He said the proposed buyout "would give them additional liquidity, so from that perspective it's a positive."
The buyers, named as defendants in the suit, include Licklider and D. Michael Talla, co-chief executives with about 40% of the stock; Millennium Partners, which holds 37% of the stock; and Kayne Anderson Capital Advisors, with about 4% ownership, according to Bloomberg data.
Frankel's suit seeks to stop the deal and award damages and legal fees.
Shares of Sports Club fell 20 cents to $2.50 in American Stock Exchange trading.