In a move that is likely to alter the composition of two of golfs most recognizable brands, Ashworth Inc. has agreed to sell all remaining outstanding shares to the TaylorMade-adidas Golf Company.
Ashworth, a staple in the golf apparel industry for the past 20 years, recently reported a loss of more than $12 million for the first nine months of 2008, as compared to a $5 million loss for the same period of 2007.
TM-aG has agreed to pay $26.5 million for Ashworths shares and will also assume all of the apparel companys debt, which amounts to a little more than $43 million. The tender offer will be subject to, among other things, the condition that at least a majority of the outstanding Ashworth shares are tendered. Analysts expect the deal to close during the fourth quarter.
TM-aG has offered to pay Ashworths shareholders $1.90 per share, but the deal could face a setback if a majority of shareholders dont agree to the price. Ashworth, Inc. shares, which spiked at $3.99 as recently as Sept. 9 of this year, were hovering between $1.80 and $1.85 per share as of Friday, Oct. 17.
The Board of Directors of Ashworth has approved the transaction and members of Knightspoint Partners, who collectively own more than 16% of Ashworth’s outstanding shares, have agreed to tender their shares. The Knightspoint Partners group represents the largest reporting shareholder group of Ashworth.
The adidas Group plans to finance the acquisition with cash on hand or through existing credit lines. The transaction is subject to customary closing conditions and is expected to close in the fourth quarter 2008.
Investors will be interested in the effects this high-profile acquisition will have on competitors within the industry. Namely, speculation is swirling about what will become of the Callaway Apparel business, which Callaway and Ashworth entered into in 2002. It is likely that the contract will be terminated as soon as the acquisition becomes official, but the situation has not been publicly addressed by representatives from either side.
The deal has also raised eyebrows from outsiders who speculate that the acquisition could have a cannibalistic effect on adidas Golf by spurning competition between two similar brands under the same parent company.
Not the case, said Karl Kimball, director of Golf at Hillandale Golf Course in Durham, NC. Kimball noted that among other differences, TaylorMade-adidas apparel is generally priced slightly higher than Ashworth apparel. “The Ashworth product is not like the adidas product,” Kimball said, “the adidas product [utilizes] the polyester, ClimaCool trend, while the Ashworth line is a cotton line youre dealing with two different types of apparel.” Kimball said definitively that Ashworth and adidas-TaylorMade attract different clientele, and that getting the two “under one umbrella” would be a strategically savvy move.
Kimball said Hillandale Golf Shop, which the PGA of America has rated as one of the Top 100 golf shops in America for the past 20 years, has seen Ashworth apparel taper off recently and has consequently carried less of the product. However, Kimball implied that trends like these are often cyclical, and maintained that the shop will likely bolster supplies of Ashworth product in the future.
