Bally Eyes ‘Poison Pill’ Defense

Bally Total Fitness Holding Corp. is preparing a possible “poison pill” takeover defense because it says two of its largest shareholders may be acting in collusion.

The nation’s largest fitness-club chain said in a statement Friday that it was “considering its options” to determine whether its shareholder rights plan was triggered because Liberation Investments and Pardus Capital Management were working together.

Bally’s poison pill defense, which allows existing shareholders to buy new stock at a discount, is effective if someone owns a stake of 15% or more. Pardus owns a 14% stake and Liberation 11%.

Liberation sued Chicago-based Bally in Delaware Chancery Court on Dec. 11, saying its takeover defense is designed to protect directors because it prevents dissident investors “from having any deals to vote together.”

Bally, which has hired JPMorgan Chase & Co. to explore a possible sale, sought an injunction against Liberation’s proposal to amend company bylaws and allow investors to oust Chairman and Chief Executive Paul Toback by a majority vote.

Pardus has criticized the sale of shares by executives including Toback, who sold almost 421,000 shares after Bally said it hired JPMorgan.

The U.S. District Court in Delaware on Thursday rejected Bally’s appeal for a preliminary injunction, the company said in the statement.

Bally sought to prevent Liberation from presenting a shareholder proposal at its annual meeting.

Bally said Emanuel Pearlman, Liberation’s general manager, had ties to Don Kornstein, who was nominated by Liberation as a candidate on the slate of Pardus European Special Opportunities Master Fund.

Liberation doesn’t have any “agreements, arrangements or understandings” with Pardus with respect to the voting of Bally shares, Pearlman said in a statement.

Bally shares rose 5 cents to $5.95 on Tuesday. The stock has jumped 39% this year.