Town Sports International Reverses Plan to Purchase Flywheel

Flywheel
(Photo by John Lamparski-contributor/iStock/Getty Images Plus.) Town Sports International cancelled its purchase of Flywheel, which had been announced in January but was not yet complete.

Town Sports International (TSI) ended its agreement with Kennedy Lewis Investment Management to purchase Flywheel, according to a filing by TSI. TSI owns and operates New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Clubs, Washington (DC) Sports Clubs as well as Total Woman Gym + Spa and TMPLE.

The plan to purchase Flywheel was announced on Jan. 6. It was to be made as a $50 million loan from Kennedy Lewis Investment Management. Part of that loan was to have been used to refinance a $193 million loan that is due in November so that the maturity date would be pushed to 2024.

TSI did not offer a reason for nixing completion of the deal. 

In addition to this news, TSI stated that it had resolved an issue that had threatened its listing on Nasdaq, the exchange on which TSI is publicly traded. Nasdaq notified the company on March 31 that the company was no longer in compliance with a Nasdaq rule that its audit committee include three independent directors and, therefore, was in danger of being delisted. The status of its audit committee changed on March 16 when Thomas J. Galligan III resigned from the company’s board of directors and the audit committee on March 16. However, on April 3, the board of directors appointed Jeffrey Crivello to the vacant seat on the board and the audit committee. Nasdaq was notified of the appointment and closed the matter, according to the filing.

All of TSI’s clubs temporarily closed their doors on March 16 due to the COVID-19 pandemic. The company’s website notes that members can cancel their memberships in person, but members have complained on social media and to the press that they cannot cancel in person because the clubs’ doors are closed.

The company is facing a class action lawsuit in New York after a member of its New York Sports Clubs said she was charged for dues in March despite the clubs closing mid-month. The Attorneys General Offices in New York, Pennsylvania and the District of Columbia threatened legal action against the company on April 3 because they said that the company continued to charge members after closing and refused to cancel memberships.

On March 26 Patrick Walsh, CEO of TSI, emailed members promising that once the clubs re-open, TSI would handle all concerns, including credits to memberships and personal training sessions, according to an article on Boston.com.

A later email from Walsh offered to freeze memberships if members sent an email to [email protected]. However, he said that members who maintain their memberships would be upgraded to the elite membership for the remainder of the year.

In March, TSI reported $6.45 million in 2019 operating losses but also $466.760 million in 2019 revenue, the third straight year of revenue growth for the company. TSI ranked No. 7 on Club Industry’s Top 100 Health Clubs of 2019 list, reporting $443 million in 2018 revenue.

Walsh had been a one-time active investor in TSI and worked his way onto the board of directors in February 2015 when the company was considering a sale. The company’s stock was trading around $6.84 at the time Walsh joined the board. He then was appointed executive chairman of the board in June 2015. At that time, the stock was trading around $2.57. It rose to around $3.20 when he moved into the CEO role in September 2016.

The company reached a high of $13.45 per share in July 2018, but its share price has fallen since then. As of April 6, the stock closed at 40 cents per share, lower than its previous lowest mark of $1.06 in February 2016.

The last time TSI’s stock closed over $1 was on March 20 when it closed at $1.20. Nasdaq can send a notice of deficiency to a company that trades under $1 for 30 consecutive days, according to The Motley Fool. The company would then have 180 days to become compliant. If the company’s share price does not rise above $1 for 10 consecutive days during that time, it can be delisted from Nasdaq. However, the COVID-19 pandemic has caused turbulence in the stock market, and in previous turbulent times, such as after the 9-11 attacks and during the 2008 recession, Nasdaq temporarily loosened its requirements for listings, according to Investopedia.com.

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