BALLY <BLY> SEEN SELLING OFF HEALTH UNIT
Bally Manufacturing Corp's proposed
public offering of 24 pct of its Health and Tennis Corp unit is
seen as the first step towards the sale of the entire unit,
analysts said.
    "In the longer-term horizon, Bally wants to concentrate on
its gaming businesses," said analyst Dennis Forst of Seidler
Amdec Securities Inc.
    Last week, Bally said it was considering the sale of
another non-casino unit, its Six Flags amusement park unit,
which analysts said could fetch about 300 mln dlrs.
    Bally spokesman Bill Peltier said "the company currently
has no hard plans to the sell any more of the health club
company, but in the long term we'll wait and see how the
offering goes."
    Once Bally's biggest revenue producer, the health club unit
had 1986 operating income of 60 mln dlrs on revenues of 456.2
mln dlrs, 28 pct of Bally's revenues. Analysts estimate the
unit could be sold for for 300-500 mln dlrs.
    Analysts said Bally's decision to offer shares in the unit
could be the first step to selling it.
    "It would seem obvious that an offering would decrease the
health club unit's debt, increase its cash flow and operating
income, making it an attractive buy to a third party," Steven
Eisenberg of Bear Stearns said.
    On Monday, Bally said it filed with the Securities and
Exchange Commission for an initial offering of 24 pct, or 5.8
mln shares, of the unit's common stock at 13-15 dlrs a share.
   About half the proceeds, 40 mln dlrs, will be used to reduce
parent Bally Manufacturing's debt which has swelled to 1.6
billion dlrs due to recent hotel acquisitions and the purchase
of shares from Donald Trump who had threatened a hostile
takeover, according to Bally treasurer Paul Johnson.
    Remaining proceeds from the stock offering and from a
separate offering of 50 mln dlrs of 20-year convertible
subordinated debt would be used to repay about 75 mln dlrs of
short term senior bank debt of the health chain unit, a Bally
spokesperson said.
    Analysts said Bally's health club unit's profits have
remained strong, but are skeptical about the industry's long
range prospects.
    "The fitness club industry, over the last 10 years, has
grown tremendously, but the question is whether its a fad or a
permanent part of our lifestyle," said Eisenberg of Bear
Stearns.
    Analysts said fitness clubs will likely flourish if the
public stays at its peak of health consciousness, but that
overcapacity is likely to occur as consumer enthusiasm wanes.
     In addition, "the returns in the fitness club industry are
just not as high as they are in the gaming industry," said one
analyst.
     There are about 6,500 fitness clubs in the U.S., excluding
clubs run by not-for-profit organizations, according to the
Association of Physical Fitness Centers who estimates it to be
an 8.0-billion-dlr-a-year industry.
     Asked if anyone has offered to buy the unit, which is the
nation's largest health club chain, Peltier said, "no one has
the money to offer to buy it."
    "The fitness industry is a fragmented industry with no
leader and there is a great opportunity for growth through
acquisition and then standardization," said Wayne LaChapelle,
chief financial officer of Livingwell INc <WELL>, the nation's
second largest fitness chain operator whih
    LaChapelle said Livingwell is always interested in
acquisition opportunities but "could not afford an acquisition
the size of Bally at this time."
 Reuter
