MANHATTAN (CN) - Weight Watchers misled investors in a "desperate attempt to boost the share price" so its executives could cash out their holdings at inflated prices, shareholders claim in a federal class action.
Lead plaintiff Vlad Kalika sued Weight Watchers International, ex-CEO David Kirchhoff, current CEO James Chambers, and senior executives Ann Sardini and Nicholas Hotchkin. Weight Watcher's controlling shareholder, Artal Group S.A., and its CEO Raymond Debbane also are named as defendants.
Weight Watchers describes itself as the world's leading provider of weight management services, with a global network of company-owned and franchise operations that sell products and services for billions of dollars a year.
Artal Group, a foreign private equity company, bought more than half of Weight Watchers' outstanding common stock from the H.J. Heinz Co. in September 1999.
Artal, a subsidiary of Dutch company Stichting Administratiekantoor Westend, owns about 52 percent of the Weight Watchers outstanding shares, controlling the majority of the voting power. As of January 2013, Weight Watchers had approximately 55 million outstanding shares of common stock, according to the lawsuit.
Debbane, Artal's CEO and director, has been the chairman of Weight Watchers' Board of Directors since the 1999 acquisition.
Kalika, who bought Weight Watchers common stock between Feb. 14, 2012 and Oct. 30, 2013, says Weight Watchers and Artal executives were involved in a massive share buyback scheme to maximize profits for themselves at the expense of other shareholders.
He claims the defendants had access to confidential company information, participated in its management, and drafted and reviewed the statements that misled investors, or at least failed to warn investors about their inaccuracy.
Kalika seeks to represent hundreds of thousands of stock buyers who allegedly were defrauded during the class period.
"On Feb. 14, 2012, Weight Watchers announced results for Q4 2011 and full-year 2011, and provided full-year 2012 earnings guidance," the complaint states. "The company provided a 2012 earnings guidance range of between $4.20 and $4.60 per share. In the same release, Weight Watchers announced that it planned to launch a 'modified Dutch auction' tender offer the following week for up to $720 million of its common stock with a price range between $72 and $83 per share, for a total of 8.78 million shares, and that it separately had agreed to purchase shares held by Artal at the same price paid in the tender offer so that Artal's percentage ownership interest in the company after the tender offer and the share repurchase would be substantially equal to its then-current level of 52 percent.
"If the tender offer was fully subscribed, the company would repurchase a total of approximately $1.5 billion of its common stock collectively through the tender offer and Artal repurchase. The company took on an additional $1.5 billion of debt in order to accomplish this. The program would reduce the total number of outstanding Weight Watchers shares from 74 million to 57 million, a 23 percent reduction. On Feb. 14, 2012, Weight Watchers common stock was trading at $79 per share.