Callaway Golf Company has prevailed in the auction to purchase substantially all of the assets of the Top-Flite Golf Company. The acquisition was approved by the U.S. Bankruptcy Court in Wilmington, DE on Thursday.
The deal is worth $174.4 million, with Callaway paying $169.3 million in cash and agreeing to take on a loan and lease agreement with Massachusetts economic development officials, a liability valued at around $5 million.
Callaway will not take on any of Top-Flites considerable debt — estimated to exceed $530 million — racked up in the KKR leveraged buyout deal in 1996.
The acquired assets will include working capital (inventory and accounts receivable) of approximately $100 million at closing, fixed assets of approximately $44 million at closing, and all golf patents, trademarks and intellectual property.
Callaway expects to close the deal in mid to late Sept.
Callaway Golf's proposal calls for the purchase of the Top-Flite, Strata and Ben Hogan brands, as well as the manufacturing facilities in Chicopee, MA, Gloversville, NY, and the Hogan facility in Fort Worth, TX. The assets of Top-Flite's subsidiaries in Canada, the U.K., Sweden, Australia and New Zealand, which were not part of the bankruptcy filing, will also be acquired.
Callaway is reportedly willing to offer employment to most Top-Flite employees, and accepted virtually all of the 43 endorsement contracts with tour professionals.
Oaktree Capital Management should now be entirely divested of the former Spalding Sports business it took control of in April 2002. Earlier this year, Oaktree sold the companys Etonic golf shoe division, reportedly for $10 million, and completed the sale of Spalding Sporting Goods group to Russell Corp. for $65 million in May.
Top-Flite filed for Chapter 11 bankruptcy protection in July after announcing that it would be acquired by Callaway for $125 million. adidas-Salomon AG later posted a bid that was reportedly in the $135 million range.
Callaway was appointed the “stalking horse” in the auction process, but had its break-up fee and other stipulations nullified by the bankruptcy court after adidas and others cried foul. The final auction was Wednesday.
More than 30 bids and counter bids were exchanged until adidas-Soloman pulled out early Thursday.
The acquisition is expected to increase Callaways ball output by about seven million dozen a year, a number that will likely be centered at Top-Flites facility in Chicopee, possibly spelling the end of ELYs failed attempt at their own plant in Carlsbad.
“We fully expect our combined golf ball business to be profitable going forward, ending the profit drain we have experienced from our own golf ball operations since start up,” Callaway chief executive Ron Drapeau said in a statement.
Callaway reported that golf ball margins were in the “single-digits” in the second quarter and the operating loss for the category was $5 million for Q2.
Analysts estimate the company has spent $170 million building the Carlsbad ball factory and from continued operating losses. The ball business has lost about $90 million since 2000.
ELY generated $55 million in revenue from balls in 2002 and had an estimated 5% market share in the category. The combination with the Top-Flite brands would give it roughly 25% of the ball market and a less expensive ball manufacturing operation.
Callaway will take a $70 million charge to “consolidate its golf ball and golf club manufacturing and R&D operations” and “write down equipment we won't need in the consolidation.” The consolidation could also affect the current Hogan club making facility in Fort Worth.
Top-Flite 2002 sales were estimated at approximately $250 million.
>>> Word is that Top-Flite CEO Jim Craigie is the only employee that Callaway did not agree to keep, but no word on the Carlsbad ball facility workers…
