Major shareholders Liberation and Pardus continue to spar with Bally

Bally Total Fitness (NYSE: BFT) seems to be at odds with two of its majority shareholders -- Liberation Investment Group and Pardus Capital Management, with Pardus noting it was not interested in a "petty, tit-for-tat" letter campaign despite being engaged in what appears to be such an exchange.
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Bally Total Fitness (NYSE: BFT) seems to be at odds with two of its majority shareholders -- Liberation Investment Group and Pardus Capital Management, with Pardus noting it was not interested in a "petty, tit-for-tat" letter campaign despite being engaged in what appears to be such an exchange.

Liberation submitted a letter to Bally Oct. 31 -- trick or treat? -- demanding the right to inspect Bally's stockholder list and certain books and records relating to the adoption by Bally's board of directors of a Stockholder Rights Plan, which Liberation dubbed the "poison pill," the independence of certain directors and the circumstances of their appointment to the board, and the company's retention of Russell Reynolds Associates to find independent directors and the relationship between RRA and existing directors of Bally's.

Liberation added that Bally stockholders have a statutory right under Delaware law to inspect and copy its books and records. Liberation and its affiliates beneficially own approximately 12 percent of Bally's outstanding shares.

Liberation added that if Bally failed to make the requested materials available to it for inspection within five business days of the submission of its letter, it would be entitled to apply to the Delaware Court of Chancery for an order compelling Bally to make them available. In addition, the Liberation said it is weighing the possibility of running a proxy contest to, among other possibilities, elect directors or change Bally's by-laws to permit the stockholders to vote to remove Paul Toback as CEO of Bally.

Although Pardus said in its latest letter on Oct. 24 to Bally that it is "completely uninterested in a petty, tit-for-tat exchange of letters," it doesn't seem that way. In its missive fired back to Bally's board, Pardus said it was disappointed with the company's response to previous communications and that it's looking more unlikely that Pardus will be able to collaborate amiably.

Like Liberation, Pardus is dissatisfied with the adoption of the Stockholders Rights Plan on Oct. 18 (to see SNEWS® story, Oct. 19, 2005, on reaction, click here) and the retention of Russell Reynolds Associates to find independent directors for the board, among many things. Over the summer, board members began to leave their positions (see SNEWS® story, Aug. 26, 2005, "Bally's board of directors continues to dwindle"). Pardus has submitted at least three candidates' names for board consideration that seemingly have been ignored by Bally. Pardus added that it has begun to pursue a proxy contest (to see SNEWS® story, Oct. 17, 2005, on plan to nominate candidates, click here).

Pardus wrote: "We see the adoption of the poison pill (Stockholders Rights Plan) as a further effort to entrench the management team and only serves to spread the appearance of a 'bunker' mentality, which can only detract from the company's recovery. Worse, news items and rumors in the marketplace concerning the company's talks to sell itself, including today's report about Wellspring Capital Management, in advance of the release of audited and restated financial statements suggest management is interested primarily in preserving its position and reserving upside in Bally's to a select few rather than ALL of the shareholders at large."

Pardus reiterated it is Bally's largest shareholder and won't be going away, adding that it will see Bally turned around and restored to its potential with or without management's or the current board's cooperation.

The stinging has also come from the media, which in September began to echo SNEWS® comments. To see that SNEWS® story on Sept. 19, 2005 on a public flogging and ongoing Liberation activity, click here.

SNEWS® View: The company's annual stockholders' meeting is now scheduled for Jan. 26, 2006, and, boy, do we expect a wing-dinger unless Toback and his board can appease their majority holders, sell, quit or be fired by then.

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