WW International Inc. (NASDAQ: WW) is under significant pressure as it navigates over $1.6 billion in debt, amid increasing competition from weight-loss drugs like Ozempic. However, Galloway Capital Partners, which recently disclosed a 2.87% stake in the firm, argues that a Chapter 11 bankruptcy filing would be unnecessary and detrimental to equity holders.

What’s at Stake for WW International?

The owner of Weight Watchers, WW International has experienced a significant drop in its stock price, plummeting from $1.40 to $0.14, amid rumors of a potential bankruptcy. Reports indicate that the company is in negotiations with bondholders concerning a court-supervised restructuring. A recent Wall Street Journal article suggested WW could be preparing for a Chapter 11 filing, triggering panic among investors.

Despite mounting financial hardships, including fierce competition from GLP-1 weight-loss medications, Bruce Galloway, the Chief Investment Officer at Galloway Capital Partners, believes WW retains strong fundamentals and should work to avoid bankruptcy. He perceives the panic surrounding the stock price as disproportionate to the firm’s financial reality.

Galloway’s Perspective on Restructuring

Galloway argues that WW does not meet the criteria for insolvency, emphasizing, “You go Chapter 11 if you’re insolvent and can’t pay your bills… this is a company making $200 million.” Instead of pursuing a bankruptcy route, he recommends an out-of-court restructuring. This approach would involve negotiating with creditors to exchange some debt for partial equity, which would alleviate debt while minimizing dilution for current shareholders.

Galloway’s strategy aims to reset WW’s balance sheet without entering bankruptcy, which could damage shareholder value. He proposes that such a deal could sustain substantial upside for both the company and its stakeholders, paving the way for a more balanced financial future.

Investing Perspective: Galloway’s View

Galloway Capital Partners began building its position in WW roughly nine months ago, identifying the company as a deep value opportunity. His investment strategy centers on businesses that are “wound down like a spring,” meaning companies that have strong fundamentals yet have been undervalued by the market due to temporary setbacks.

Despite several challenges, Galloway believes the company’s strong operational base and brand recognition position it well for a potential turnaround, especially if it can manage its debt issues without resorting to bankruptcy.

Monitoring WW International’s Performance

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Conclusion

WW International stands at a crucial fork in the road, with pressing financial challenges and the looming risk of bankruptcy. However, with strong backing from Galloway Capital Partners, the company could pursue restructuring that avoids the pitfalls of Chapter 11. As the market awaits further developments, investors must remain vigilant, keeping tabs on the company’s restructuring efforts and its capability to regain stability.