10 doctors try to derail Regis' sale of Hair Club

  • Article by: THOMAS LEE , Star Tribune
  • Updated: June 5, 2012 - 10:15 PM

The physicians say they fear that a buyer candidate would end their surgical business.

A group of doctors contracted by Hair Club for Men and Women, a unit of Regis Corp., is seeking to block the possible sale of the unit to Aderans Co., according to documents obtained by the Star Tribune.

In a recent letter to Regis Chief Operating Officer Eric Bakken, the doctors say they fear the Japanese hair company will eliminate Hair Club's surgical business, their financial lifeblood, citing previous statements from Aderans executives.

"Regis is aware of this fact, and if it continues to consummate a deal with Aderans, then it will be doing so knowingly and intentionally to harm" the doctors, Scott Tarbox, a lawyer representing 10 Hair Club physicians, wrote in the letter. The group threatened to sue if Regis proceeds with the sale.

Regis wouldn't comment on the dispute, citing the potential for litigation from the doctors. Aderans officials could not be reached for comment.

Whether a new owner could sever Hair Club's current service contracts depends on how Regis and the physicians structured their deals. In any case, a court battle between the doctors and Regis could disrupt a potential big payday for the company.

Hair Club, which offers medical treatments for hair loss, generates an annual operating profit of $30 million based on sales of $140 million. The company is likely to distribute cash from a sale back to shareholders through dividends or repurchasing stock. Analysts expect Hair Club to attract several suitors. The company, which operates 96 centers across the country, only controls about 5 percent of a $4 billion a year hair restoration market in the United States, according to Regis estimates.

Tarbox, a lawyer at Rumler Tarbox Lyden Law Corp. in Denver, confirmed the letter to the Star Tribune but declined an interview.

"The HCFM physicians group considers this a private matter and, at this time, does not desire to battle it in the press," Tarbox said in an e-mail. "The doctors are hopeful, however, that they will receive the courtesy of a response from Regis and can open a dialogue with Regis regarding how the doctors may fit into Regis' future plans for the company."

Selling Hair Club is a key part of activist investor Starboard Value's strategy to revitalize Regis, the world's largest hair salon company. Last year, Starboard, a New York-based hedge fund firm which owns 4.4 percent of Regis stock, fought a successful proxy battle to elect three of its candidates to the board of directors.

Starboard has pledged to cut costs at Regis and focus the company's attention on fixing its ailing core salon business in North America. To do this, Starboard said Regis should sell off noncore assets, including Hair Club and 400 salons in Great Britain. In addition, Regis owns stakes in Empire Education Group, a chain of 102 cosmetology schools in the United States, and Provalliance, a chain of 2,760 salons in Europe.

In April, Regis said it will sell its Provalliance stake to the Provost family for about $100 million. So far, Wall Street has approved of Starboard's strategy; since the beginning of the year, Regis shares have jumped almost 16 percent to Tuesday's close of $17.62.

Hair Club, based in Boca Raton, Fla., is a relatively small business compared with Regis but a highly profitable one. The company, which Regis acquired in 2004, now generates about 14 percent of Regis' operating profits but only 6 percent of Regis' annual sales of $2.3 billion.

The doctors' letter identified Aderans -- the world's largest wigmaker, which also owns a hair transplant business -- as a top candidate to acquire Hair Club. Tokyo-based Aderans generated more than $600 million in revenue last year. The company is trying to expand beyond its sluggish home market into China and the United States.

The physicians say they also fear that Regis is disclosing confidential information about their practices to Aderans, which they consider a competitor. The doctors also accuse Regis of failing to communicate with them.

The doctors demand that Regis "immediately cease and desist breaching their fiduciary duty and duty of loyalty" to their group.

"If you fail to immediately comply with the foregoing demands, [the doctors] will have no choice but to initiate legal action in order to protect their professional entities and livelihood," the letter said.

Thomas Lee • 612-673-4113

  • get related content delivered to your inbox

  • manage my email subscriptions

ADVERTISEMENT

Connect with twitterConnect with facebookConnect with Google+Connect with PinterestConnect with PinterestConnect with RssfeedConnect with email newsletters

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

 
Close