Callaway CEO Ron Drapeau said Thursday that the Top-Flite acquisition is the “preferred solution to help eliminate the losses in the ELY ball business, but “not the only option”. He may have to look at those other options if adidas is able to convince the bankruptcy court overseeing the Top-Flite Chapter 11 case that they should be part of any deal to acquire the assets of the owner of the Top-Flite and Ben Hogan brands.

After all is said and done, Callaway looks to pick up the company’s patents and trademarks for about $35 million and that will be tough for either adidas or Nike to pass on to own roughly 21% of the golf ball market.

In published reports, Casey Alexander, an equity analyst with Gilford Securities, said he expects a heated bidding war between Callaway and rival golf companies.

“I just dont see any way their competitors are going to let them steal it for that price,” Alexander said.

Well, adidas-Salomon has jumped in with both feet, filing last Wednesday with the bankruptcy court papers that indicate their own interest in the Top-Flite company’s assets while asking the court to eliminate the break-up fee called for in the Callaway/Top-Flite plan filed with the court (Story Page 5).

adidas is reportedly willing to pay $5 million more for Top-Flite than ELY’s bid and is willing to place a 10% down payment in escrow to prove its willingness to go the distance. In the filing, adidas said Top-Flite management pulled the plug on their own negotiations with the company just days before inking the Callaway deal.

The parent of TaylorMade-adidas Golf said in the filing with the court in Delaware that there is “no justification and no evidence” that a break-up fee was necessary to attract a firm bid for the company, stating in the court papers that they are willing to act as the de-facto “stalking horse” without a break-up fee provision.

In January, TM-aG exercised its option to purchase the Maxfli brand under terms of the licensing and distribution agreement it signed with Dunlop Slazenger Group LTD in December 2001. The company moved the Maxfli operation to TM-aG’s Carlsbad, CA home in January, but left R&D and manufacturing in South Carolina.

Regardless of who wins, the deal will leave either company with three ball manufacturing facilities and two club operations. Ease of consolidation will be key to making the deal work for either company. Drapeau said that the deal they have on the table would eliminate the current Top-Flite pension plan, an issue that could prove problematic for the unionized Chicopee, MA and Gloversville, NY Top-Flite plants. Callaway’s Carlsbad facility is not unionized.


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