authors Geert De Lombaerde
Shares of Tivity Health slumped 30 percent Monday after the company’s leaders said they have struck a deal to buy diet plan company Nutrisystem for about $1.4 billion.
Putting together Tivity’s fitness plans and services with Nutrisystem’s nutrition offerings will create a company with revenues of $1.3 billion and about $135 million in profits. Leaders of the two companies see a big opportunity to grow those numbers by marketing each other’s services to the other’s core client base.
Investors, however, aren’t (yet) seeing it that way. After Tivity shares (Ticker: TVTY) closed Friday at $40.61, they opened trading this morning at $33.37 and at one point slumped on very heavy volume to $25.93 — a 52-week low and off 36 percent from the Friday mark — before recovering a little ground. Heading into the close, they were changing hands at $27.95, down 31 percent on the day.
On a conference call before the market opened Monday morning, Tivity CEO Donato Tramuto said his team’s plan to buy Nutrisystem acknowledges that much about health care these days is focused not on innovation but on integration between different players.
“We’re integrating a value proposition that, quite frankly, is already occurring with our health plans,” Tramuto told analysts and investors. “We’re not pulling this out of the sky. We have been very thoughtful around the needs and how we differentiate ourselves to preserve the long-term value of our contracts as we go forward.”
Pressed by several analysts about the risk-reward of this deal and for specific growth forecasts, both Tramuto and Nutrisystem boss Dawn Zier — who will become Tivity’s president and COO — deferred, saying a lot of numbers still need to be crunched to come up with meaningful projections.