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Weight Watchers International, Inc. (WTW)’s Shares Putting A Lot Of Weight On Amid Takeover Rumors

One of the leading weight-loss brands on the planet, Weight Watchers International, Inc. (NYSE:WTW), has seen a major reduction in its share price over the past couple of months, with its shares crumbling by 80.84% throughout the year. Nor did the loss of share value appear to waning; we reported on Thursday that Weight Watchers was one of the worst performing stocks of the day, losing 12.71% of its already-battered value. However, things have changed this morning, as a takeover rumor from an activist hedge fund has helped the company’s stock jump 23% in the morning session. According to the New York Post, an activist hedge fund investor is in talks with possible partners to make an offer for the weight management firm. The unidentified activist hedge fund is said to have bought $144 million worth of senior loans of Weight Watchers International, Inc. (NYSE:WTW), which are due in April 2016.

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According to the undisclosed sources, the current evaluation along with outstanding debt puts a $2 billion price tag on the company. However, it might take some efforts to convince the current majority stockowner of Weight Watchers International, Inc. (NYSE:WTW), Artal Group, to sell, considering that the Luxembourg group purchased a 51% stake for $224 million in 1999 and it has already bagged in excess of $3.8 billion as of now. It is important to consider that the weight reduction company has $2.1 billion in junior debt due in 2020 and this deal might persuade its junior lenders to go for the deal.

The entrance of an activist investor in any firm usually triggers growth in share prices, but in this case it’s the possibility of a takeover and the likely premium on the shares that would entail, that have investors excited this morning. Despite its dismal performance in its most recent quarter, and a tumbling share price, this deal represents an investment opportunity for new investors as well as the existing shareholders of Weight Watchers International. Smart money shareholders had a very negative outlook of Weight Watchers International, Inc. (NYSE:WTW) at the end of the first quarter, with 18 investors having aggregate investments of $28.73 million against holdings of $195.94 million from 22 hedge fund investors at the end of 2014.

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 135% over the last 34 months, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

The takeover rumors are likely to push the shares even higher over the next few days. Insiders at Weight Watchers International, Inc. (NYSE:WTW) are bullish on the company’s shares, with Denis Kelly, Director at Weight Watchers Inc., purchasing 1,000 shares of the company on May 12, 2015.

Let’s take a look at the hedge fund sentiment for the shares of Weight Watchers Inc at the end of the first quarter.

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