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Pardus Letter Alleges Bally 'Bad Judgment'

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NEW YORK (–Pardus Capital Management LP, which manages Pardus European Special Opportunities Master Fund LP, sent a letter to all shareholders in Bally Total Fitness Holding Corp., Chicago, asking for their support for Pardus’s nominees to the board of directors of Bally.

Directors will be elected at the annual meeting, set for Jan. 26. Pardus owns 5.5 million shares of Bally stock.

The letter listed eight respects in which Bally’s management has, in Pardus’s view, exercised poor judgment in recent months, such as the “alienation of the investment community,” sale of assets at undervalued “fire sale” prices, and the failure to keep promises in connection with the restatement of financials.

The statement also said that the fund has been advised “that late last evening [Jan. 9], Bally’s management has recklessly and baselessly sued Pardus as well as its principals in their individual capacity …” seeking to trigger a poison pill. It said that the fund hasn’t yet had the opportunity to review this lawsuit “but we can imagine no other justification than management’s desire to further entrench itself.” The filing of such a lawsuit couldn’t be confirmed Tuesday morning.

The letter also charges that management has been letting select private equity firms conduct due diligence in a “shadow process” aimed at producing a management-friendly partner at the expense of the stockholders.

Management mailed a statement of its own case to stockholders Jan. 6. It urged votes in support of the board of directors and management team which, it said, “has made significant progress in turning around and transforming the Company’s business.”

Management claimed that it has sought to settle its differences with Pardus, and with its other prominent dissident, Liberation Investments LP, Los Angeles. For example, it said “we have already agreed to nominate two of the directors Pardus proposed without any conditions. That represents more than 20% of the Board, which seems more than appropriate given that Pardus owns just slightly more than 14% of the Company’s stock.”

It said that it had made other concessions in private talks, but that Pardus and Liberation have refused any compromise, often responding to concessions by adding new demands.

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Contact Bob Keane with questions or comments at [email protected].


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