Favorable notes arrived on Topgolf Callaway Brands Corp. and Acushnet Holdings Corp., the parent of Titleist, from Jefferies and B. Riley following news of the merger of PGA Tour with Saudi-backed rival LIV Golf as analysts project the deal will heighten interest in golf.

“The recent announcement has undoubtedly caught the golf industry by surprise,” wrote Jefferies analyst Randy Konik, who covers both Topgolf Callaway Brands and Acushnet, to his clients. “However, we believe that this unexpected agreement holds immense potential to elevate the sport of golf to new heights.”

B. Riley analyst Eric Wold, who covers Topgolf Callaway Brands, wrote, “With the emergence of LIV Golf in recent years causing significant disruption to the golf industry around television rights, player sponsorships and consumer interest levels, we believe coordinated efforts between the parties and the potential for combined events with players from the PGA Tour and LIV Golf could have meaningfully positive impacts on future awareness levels for the game—and, more importantly, for the various brands operated by MODG [Topgolf Callaway Brands].”

As reported by SGB Media, the agreement between PGA Tour, DP World Tour and the Public Investment Fund (PIF) will combine PIF’s golf-related commercial businesses and rights, including LIV Golf, with the commercial businesses and rights of the PGA Tour and DP World Tour into a new, collectively owned, for-profit entity to ensure that all stakeholders benefit from a model that “delivers maximum excitement and competition among the game’s best players.”

In addition, PIF will make a capital investment into the new entity to facilitate growth. The new entity, name to be determined, will implement a plan to “grow the combined commercial businesses, drive greater fan engagement and accelerate growth initiatives already underway.” With LIV Golf in its second season, the PGA Tour, DP World Tour and PIF will work together to feature and grow team golf.

PIF will initially be the exclusive investor in the new entity, alongside the PGA Tour, LIV Golf and the DP World Tour. In the future, PIF will have the exclusive right to further invest in the new entity, including a right of first refusal on any capital that may be invested in the new entity, including into the PGA Tour, LIV Golf and DP World Tour. The PGA Tour will appoint a majority of the Board and hold a majority voting interest in the combined entity.

Jefferies’ Konik said that by joining forces, the combined entity could “harness their collective resources, capital, and expertise to generate heightened attention and overall interest in the game. The infusion of capital from PIF signifies a strong commitment to the growth and promotion of golf on a global scale. This injection of funds will enable the newly formed company to embark on ambitious initiatives aimed at expanding the reach of golf and cultivating a broader fan base. The global nature of this collaboration creates a more vibrant golfing landscape attracting new players, sponsors and fans, which will inevitably fuel growth for golf OEMs, in our view. Within our coverage, GOLF and MODG are beneficiaries, although we prefer MODG given its asymmetric upside potential.”

Jefferies has a “Hold” rating on Acushnet at a price target of $51. The firm has a “Buy” rating on Topgolf Callaway Brands with a price target of $56.

B. Riley Wold wrote, “With our understanding that one of the goals of LIV Golf was to introduce the game of golf in a new way to different and new demographics of consumers—with new event formats and more relaxed event atmospheres—we would expect some combination of those efforts with the more traditional PGA Tour to create a broader global reach into the golfing consumer pool.”

Wold also sees opportunities for the united group to capitalize on acceleration in on-course and off-course golf participation during the pandemic. For Topgolf Callaway Brands, Wold eyes an opportunity to cross-promote a number of its golf-related brands. He wrote, “For example, Callaway equipment to Topgolf consumers, TravisMathew to Callaway equipment and Topgolf consumers, and Topgolf to PGA Tour viewers. With the potential for a further expansion of golfing awareness from this new combination (with Callaway endorsement agreements driven by the amount of airtime for televised golf events), we would only expect a positive benefit to MODG from Topgolf logos on players’ clothing, increased demand for Callaway equipment from players winning events, and awareness of the growing presence for TravisMathew clothing.”

B. Riley reiterated its “Buy” rating on Topgolf Callaway Brands with a price target of $31.

On Tuesday, after the news arrived, shares of Acushnet rose $2.11 to $48.73, while shares of Topgolf Callaway Brands added $1.01 to $19.30.

Photo courtesy TravisMathew