A Los Angeles-based investment firm with past ties to Bally Total Fitness Holding Corp. is trying to take control of the Chicago-based health club operator.
Liberation Investments Ltd. has amassed a 12 percent stake to become Bally’s largest shareholder. It sued the company on Monday trying to force it to hold an annual meeting and elect four new board members, according to filings with the Securities and Exchange Commission.
Lee Hillman, who resigned as chief executive of Bally in 2002, is president of the similarly named Liberation Investment Advisory Group LLC. The two firms are not formally linked, however their executives both served with Bally and are united in opposing Bally’s current management.
In February, an internal Bally audit committee investigation found that Hillman had engaged in “aggressive accounting,” and was “responsible for multiple accounting errors” at Bally.
The SEC launched an investigation last year into Bally’s accounting issues, which forced Bally restate its financial statements for Hillman’s entire six-year tenure, from 1996 to 2002. The U.S. attorney’s office in Washington D.C. has launched a criminal probe.
For three years, Bally has struggled to reverse a decline in its core fitness business and to get out from under $725 million in debt. In March, Bally hired Blackstone Group as a financial advisor.
The company has not yet filed its financial statements for 2004, and has delayed its annual meeting while cooperating with the SEC and U.S. attorney’s office investigations.
In July, Bally’s independent directors sent a letter to Emanuel Pearlman, chairman and chief executive of Liberation Investments Ltd., reiterating their support for Bally Chief Executive Paul Toback and denying a request by Pearlman to join Bally’s board. Pearlman had worked for 10 years as a consultant to Bally and was a prot & #233;g & #233; of former corporate raider Arthur Goldberg.
The lawsuit filed by Liberation in Delaware Chancery Court seeks to force Bally to hold its annual meeting by Oct. 28. A spokesman for Bally, Matt Messinger, declined comment.
Bally sold its Crunch Fitness division on Monday for $45 million in cash. Hillman had negotiated the purchase of Crunch Fitness in 2001 for roughly $90 million in cash and stock.
