Brunswick Corporation reached an agreement to sell its retail bowling business to Bowlmor AMF for $270 million. As a result of the sale, the company also said it plans to divest its bowling products business, which includes a wide range of balls, bags, shoes and apparel under the Brunswick name.
On a conference call with analysts, Dusty McCoy, Brunswick Corp’s chairman and CEO, said he expects the sale of the bowling products business to be completed by year-end. Net proceeds from both divestitures and associated actions are expected to approximate $270 million to $290 million. Brunswick will retain its legacy and namesake billiards business.
McCoy said several months ago, Brunswick received an unsolicited offer from Bowlmor AMF to purchase its retail bowling centers.
“We evaluated their offer and discussed the transaction with our board,” says McCoy. “We determined that this was a unique opportunity to transfer ownership of this business at an attractive valuation, and as such, the sale would be in the best interest of our shareholders and the retail bowling business itself.”
Revenues in the bowling and billiards segment were $310 million in 2013. Approximately 60 percent, or $187 million, came from its retail centers, and 33 percent, or $101 million, from its products business. The retail centers and the products business combined generated $27 million in EBIT and approximately $43 million in EBITDA.
McCoy further noted that with the bowling industry has been evolving as center counts decline and the customer mix shifts from predominantly league bowlers to casual bowlers seeking an entertainment-oriented experience. For Brunswick, significant investments would have been needed to convert existing centers to appeal to the more casual bowler. McCoy added, “We believe directing the investment into select portions of our core marine operations as well as our fitness business provides better opportunities for greater returns.”
Besides Brunswick billiards tables and table tennis, the company makes Life Fitness and Hammer Strength fitness equipment. On the marine side, it makes Mercury Marine engines and is the largest maker of pleasure boats in the world. Its boats range from traditional fiberglass recreation boats and motoryachts (Bayliner, Sea Ray, Hatteras, Meridian) to saltwater fishing boats (Boston Whaler, Cabo, Trophy).
Conversely, McCoy said Bowlmor AMF, the country’s leading bowling center already, increases its center count to 343 centers in North America and can continue to invest in its successful entertainment concepts.
Lazard has been hired to find a buyer for its bowling products business. Added McCoy, “Brunswick is the most recognized and respected brand in the bowling industry with a breadth of product offerings throughout the world, combined with strong distribution networks.”
The plan calls for licensing the Brunswick name for bowling products, just like the company plans for its retail operation. Added McCoy, “It will be not a carte blanche with the Brunswick name. There will be restrictions on use, what can be done with the business, and it will need to be consistent with the business we're doing today so that we don't harm the Brunswick name, if you will, but yet the buyers get the advantage of the great Brunswick name in the bowling industry.”
The divestitures and associated discontinued operations treatment are expected to lead to a dilution to EPS from continuing operations on both a GAAP and adjusted basis to be approximately 20 cents a share for the full year 2014. Free cash flow from continuing operations in 2014 is expected to be lower by $35 million to $40 million.
However, McCoy said Brunswick still expects to be able to reach its long-term financial targets included in its three-year plan, including its goal of $3.00 to $3.40 earnings per diluted share in 2016.
“Upon closing, we will be well positioned to strengthen our marine and fitness segments, which we believe is the best opportunity to increase shareholder value,” said McCoy. The company also plans to consider increasing its quarterly dividend, accelerating contributions to the company's under-funded pension plans, and establishing a share repurchase program.
“Our highest priority will be to target investment opportunities in segments such as marine parts and accessories along with opportunities in fitness,” said McCoy.
