Fitness First faces opposition to buyout

Fitness First set the stage for a potential battle over its attempts to be taken private yesterday, after the health club operator said trading conditions had held up since it issued a profit warning in October.

The group, which confirmed it was in bid talks about a possible management buyout, said the outlook for the industry remained "attractive" as it reported a 17 per cent rise in pre-tax profits.

Fitness First hoisted the "for sale" sign last November, after warning that a series of management mistakes over expanding too quickly would knock 20 per cent off its full-year profits. The slump in its share price prompted a number of approaches from private equity houses and the group granted exclusive negotiating rights to Cinven, the venture capitalists.

But shareholders warned yesterday that any attempt by Fitness First's management, led by Mike Balfour, to take the group private on the cheap would meet opposition. One large institutional shareholder said: "We don't want a cosy management buyout, which gets out at a very depressed price. We are not forced sellers."

Investors expressed frustration at the fact that Fitness First had returned to the market last February, raising £75m via a placing and open offer at 412p a share to fund expansion, but had then run into trouble by opening more clubs than it originally intended. "Management paid lip service to our wishes but then went on to open more clubs," another shareholder said.

The spotlight will fall on Fitness First's non-executive directors to explore other options in addition to a management buyout, shareholders added. These could include selling off the group's international operations to raise funds and then running the UK business for cash.

Fitness First said its independent directors, Walter Goldsmith and John Denning, were supervising negotiations.

Fitness First, which operates 330 clubs in 14 countries, reported underlying pre-tax profit up 17 per cent to £24.1m, although after exceptional charges relating to the restructuring of its UK clubs, pre-tax profits were almost flat at £18.5m. Turnover in the 12 months to 31 October rose by 68 per cent to £224.2m, boosted by the strength of the group's international clubs. Its shares rose 14 per cent to 152.5p.