Investor transfers Nautilus shares

Firm that took over Vancouver company says its job is complete

By Aaron Corvin, Columbian port & economy reporter

Published:

Updated: June 3, 2011, 6:05 AM

 

The activist investor that took control of Nautilus Inc. more than three years ago says its job here is done.

New York-based private investment firm Sherborne Investors has unloaded all of its shares in the Vancouver-based maker of fitness equipment, according to documents filed Tuesday with the U.S. Securities and Exchange Commission.

Sherborne transferred about $25.3 million worth of Nautilus stock, or roughly 10 million shares, directly to its investors — a move that a senior Nautilus executive said Thursday was standard practice for Sherborne and should not be taken as a negative action.

Mike Mulholland, chief financial officer for Nautilus, said Sherborne’s “repositioning of their holdings” reflects confidence that efforts to turn around Nautilus are complete.

Nautilus’ positive direction also is echoed in the decision by Sherborne officials to step down from leadership roles at Nautilus, Mulholland said, and by “the operational success that we’ve reported over the last two quarters.”

Sherborne’s decision to distribute its Nautilus shares marks the latest shift for the company. Last week, Nautilus announced it will move forward under the direction of two new leaders: Bruce Cazenave as CEO and M. Carl Johnson III as nonexecutive chairman of the board.

They succeed Edward Bramson, a managing member of Sherborne, who took command of Nautilus more than three years ago. Bramson seized control of the company in a hostile takeover after the company’s stock faltered. In addition to Bramson’s decision to step down, Craig McKibben, chief financial officer of Sherborne, resigned from the Nautilus board.

In leaving the company, Bramson said in a news release that the company had completed its turnaround — “a remarkable transformation” despite its economic and consumer-credit difficulties.

The stock and leadership changes at Nautilus come after the company’s recent positive earnings reports. For the three months ended March 31, for example, Nautilus posted a profit of $1.6 million, returning to profitability after annual losses every year since 2006. That compares with a loss of $7.8 million for the first quarter of 2010.

During the earnings call in April, company officials said several key initiatives are moving Nautilus into positive territory, including its focus on cardio products and its adoption of new consumer credit programs to increase sales.

In late 2007, Bramson used Sherborne to wage a proxy battle for control of the Nautilus board. By March 2008, Nautilus’ former CEO Robert Falcone had been replaced by Bramson, who had already become board chairman.

Bramson took over the company, which had been on a fast growth track, just as the Great Recession hit. Nautilus’ sales depend on consumers, who must be willing and able to open their wallets or take on debt to buy the company’s costly fitness equipment.

Under Bramson’s direction, the company moved into cost-cutting mode. It backed out of an agreement to buy a Chinese manufacturer and started shedding jobs. Nautilus also sold Pearl iZumi, which it had bought in an unsuccessful bid to break into fitness apparel. Buyer Shimano American Corp. paid $65.3 million in cash and assumed $4.2 million in long-term debt.

Mulholland, the chief financial officer for Nautilus, said both the Nautilus board and Sherborne agreed the company is ready to move forward.

Mulholland said it’s been Sherborne’s practice to no longer hold shares in a company when it’s no longer actively involved in restructuring it. When Sherborne’s work is done, he said, “they step out of their role.”

In the case of Nautilus, Sherborne transferred its shares in the company to those who invest in Sherborne, Mulholland said.

Now, Nautilus prepares for direction from new leaders. Cazenave, the company’s new CEO, brings more than 20 years of senior executive leadership to the company. He has a background in running global consumer products companies, including as vice president and general manager of Black & Decker.

Johnson, the new nonexecutive chairman, joined the Nautilus board in 2010 after holding executive positions at Campbell Soup Company and Kraft Foods USA. Johnson is a member of the Nautilus compensation committee.

Nautilus sells its fitness products through two primary channels: its direct business, which reaches consumers through TV and other advertising; and retail, which offers the company’s products through outlets such as Dick’s Sporting Goods.

Founded in 1986, the company’s brand names include Nautilus, Bowflex and Schwinn Fitness.

Sherborne had owned about a third of Nautilus’ shares before this week. Nautilus employs roughly 330 people.

Nautilus stock, which trades as NLS, closed Thursday at $2.08, down 1 cent.