Callaway merging with Top Golf...

[vsabre]

https://www.dallasnews.com/business/local-companies/2020/10/27/topgolf-is-merging-with-callaway-in-a-deal-valued-at-2-billion/

 

Might be an interesting union. 

[drvrwdge]

I thought Callaway already had a vested interest in TopGolf? Aren’t all the house clubs Callaway? I could be mistaken. 

[vsabre]

I think the article indicated they previously  had a 14% stake in Top Golf...

[btyh]

22 minutes ago, drvrwdge said:

I thought Callaway already had a vested interest in TopGolf? Aren’t all the house clubs Callaway? I could be mistaken. 

I thought the same

[Adam C]

Does this mean that TopGolf will become a fitting location for Callaway equipment? That seems like a logical step.

[ChipNRun]

14 hours ago, drvrwdge said:

I thought Callaway already had a vested interest in TopGolf? Aren’t all the house clubs Callaway? I could be mistaken. 

My wife and I visited the TopGolf location in Myrtle Beach, SC two years ago. At the time, in-house irons looked almost identical to the Callaway X20 irons from circa 2009. A site worker said Callaway made all their house golf clubs.

[pinestreetgolf]

Callaway bought them, its not a merger.  Its called a merger because the tax code requires it but its a stock-for-stock purchase made tax free by 368(a)(1)(B).  For better or worse this is Top Golf selling to Callaway and Callaway will now run it completely.  It looks like Top Golf had some serious cash flow issues in the wake of COVID so they probably picked it up for peanuts.  Callaway's public filing on the specifics of the deal will be interesting.  No way Top Golf does this if its healthy, its an awful deal for Top Golf if it has any value at all.

[tw_focus]

Callaway stock down 20%+ on the deal. Maybe the price was too high? $2 billion ($1.5 billion after stock drop...) for 63 locations, compare to Dave and Busters worth $800 million for 120+ locations. There was talk of a $4 billion IPO for Top Golf pre-Corona, but talk is cheap.

[Fairway14]

3 hours ago, tw_focus said:

Callaway stock down 20%+ on the deal. Maybe the price was too high? $2 billion ($1.5 billion after stock drop...) for 63 locations, compare to Dave and Busters worth $800 million for 120+ locations. There was talk of a $4 billion IPO for Top Golf pre-Corona, but talk is cheap.

 

In recent years I think a significant part of Callaway's market cap valuation included the speculation that the company's ownership interest in TopGolf (following a TopGolf IPO). As you wrote, speculation had been a $4 billion IPO.

If I understand correctly,  TopGolf's established private market valuation is now $2 billion, and Callaway will issue new stock to acquire an additional 37% of TopGolf, which when added to the 14% Callaway already owns, will make Callaway the majority TopGolf shareowner.

My take on this is that Callaway management is using the company's current over inflated stock price as currency to make the acquisition.

If Callaway can manage TopGolf to have strong 2021 and 2022 business years, then I would guess Callaway would look to spin off TopGolf as separate company IPO. I've never been to a TopGolf facility but my sense is that if its golf-food-beverage-entertainment concept is especially popular with consumers then other companies will enter the space and become competition for TopGolf.

[double_d]

23 hours ago, Adam C said:

Does this mean that TopGolf will become a fitting location for Callaway equipment? That seems like a logical step.

I think they would have to use different balls for that or the numbers would be all wrong. The TopGolf balls are not like balls you would play on course with. It will probably happen though. Like you said, makes sense as a next step.

[Dr. Block]

I hope they don't mess with the food. One of Top Golf's biggest assets as a great entertainment venue is their from scratch kitchens. Not something you'd expect in such a place, but it was a savvy part of their strategy that got them to where they were before this damn virus turned the industry on its head. 

[lefthack]

Callaway stock doesn't seem all that happy about it, lol.

[Rory4Pres]

9 minutes ago, lefthack said:

Callaway stock doesn't seem all that happy about it, lol.

 

Wouldn't be surprised if top golf was in debt to their eye balls, especially with the pandemic killing sales for them this year.  Callaway probably bit the bullet short term in hopes of long term growth.

 

[pseudoswede]

Reports say that Callaway took on about $550M in Topgolf debt.

[Pepperturbo]

Smart decision for both parties.  I suspect TopGolf was running out of expansion funds, yet growing in popularity and bringing in a lot of non-golfers. 

Edited October 29, 2020 by Pepperturbo

[Warrior42111]

Definitely should be a good long term investment imo. Too many investors theses days are day traders.

[LeoLeo99]

2 hours ago, Dr. Block said:

I hope they don't mess with the food. One of Top Golf's biggest assets as a great entertainment venue is their from scratch kitchens. Not something you'd expect in such a place, but it was a savvy part of their strategy that got them to where they were before this damn virus turned the industry on its head. 

 

I've only been once but the food was surprisingly good.  The flat bread pizzas were very good and those injectable donut holes are outstanding.  

[Slona]

36 minutes ago, LeoLeo99 said:

 

I've only been once but the food was surprisingly good.  The flat bread pizzas were very good and those injectable donut holes are outstanding.  

^^^ Hard agree with this. Really hope the food stays. SO and I sometimes go just for some meals, and happen to play some golf while we eat. 

 

[Dr. Block]

3 hours ago, LeoLeo99 said:

 

I've only been once but the food was surprisingly good.  The flat bread pizzas were very good and those injectable donut holes are outstanding.  

 

3 hours ago, Slona said:

^^^ Hard agree with this. Really hope the food stays. SO and I sometimes go just for some meals, and happen to play some golf while we eat. 

 

The place really is impressive from top to bottom. They've put a lot of thought and a lot of strong restaurant people in place to make it what it is. Food, drinks, and maybe even more impressive then those things is the level of service they achieve from the amount of turn-over they deal with. They are strong, strong operators. Hopefully the folks at Callaway don't panic and start cheapening the brand. Whatever issues they are dealing with right now will disappear very quickly once the world returns to normal. Top Golf's print money when they are chugging along at full speed. The company I work for came close to landing them as a client early in their existence, so I got to learn quite a bit about their operation. The food was a proud point of differentiation for them. My personal favorite is their signature nachos with smoked chicken. You might think of a heaping messy plate of nachos when you glance at the menu, but they are a little more clever then that

 

Edited October 29, 2020 by Dr. Block

[Murphy76]

1 hour ago, pseudoswede said:

Reports say that Callaway took on about $550M in Topgolf debt.

 

I wonder how much of that is real-estate.  I heard a rumor that Topgolf really wanted to expand more in California, but property values make it less than attractive. 

[Medson]

What exactly is Callaway buying for $2B, i.e. customer base, physical properties, brand, etc?

[pseudoswede]

30 minutes ago, Medson said:

What exactly is Callaway buying for $2B, i.e. customer base, physical properties, brand, etc?

 

Topgolf - the actual golf entertainment business

Toptracer - technology and licensing

Topgolf Media - I guess best known for their World Golf Tour video game

 

All detailed here... http://press.topgolf.com/2020-10-27-Callaway-and-Topgolf-to-Combine-Creating-a-Global-Golf-and-Entertainment-Leader

[pinestreetgolf]

11 hours ago, Fairway14 said:

 

In recent years I think a significant part of Callaway's market cap valuation included the speculation that the company's ownership interest in TopGolf (following a TopGolf IPO). As you wrote, speculation had been a $4 billion IPO.

If I understand correctly,  TopGolf's established private market valuation is now $2 billion, and Callaway will issue new stock to acquire an additional 37% of TopGolf, which when added to the 14% Callaway already owns, will make Callaway the majority TopGolf shareowner.

My take on this is that Callaway management is using the company's current over inflated stock price as currency to make the acquisition.

If Callaway can manage TopGolf to have strong 2021 and 2022 business years, then I would guess Callaway would look to spin off TopGolf as separate company IPO. I've never been to a TopGolf facility but my sense is that if its golf-food-beverage-entertainment concept is especially popular with consumers then other companies will enter the space and become competition for TopGolf.

callaways stock is down because they paid for top golf *with stock*. If you issue 20% more stock your stock drops 20%.
this is common in no cash acquisitions, and says nothing about the deal one way or another.

 

edit - meant to quote the post you quoted, which was nonsensical.

Edited October 29, 2020 by pinestreetgolf

[Fairway14]

3 minutes ago, pinestreetgolf said:

callaways stock is down because they paid for top golf *with stock*. If you issue 20% more stock your stock drops 20%.
this is common in no cash acquisitions, and says nothing about the deal one way or another.

 

Callaway's current market cap is $1.5 billion.

Callaway's current share count is 95 million shares.

At a $2 billion valuation of TopGolf, to acquire the 37% of TG it needs to reach 51% ownership of TG, Callaway will need to issue new Callaway shares worth approximately $700 million. If my math is correct, at its current $15 per share ($1.5 billion market cap) Callaway will need to issue approximately 50 million new shares, increasing the company's current total from 95 million shares to 145 million shares.

[pinestreetgolf]

14 minutes ago, Fairway14 said:

 

Callaway's current market cap is $1.5 billion.

Callaway's current share count is 95 million shares.

At a $2 billion valuation of TopGolf, to acquire the 37% of TG it needs to reach 51% ownership of TG, Callaway will need to issue new Callaway shares worth approximately $700 million. If my math is correct, at its current $15 per share ($1.5 billion market cap) Callaway will need to issue approximately 50 million new shares, increasing the company's current total from 95 million shares to 145 million shares.

It’s not the price today. It’s the price when the boards approved the merger. We have no idea when that was or what price was used.  They can issue stock for whatever price they want to whomever they want for whatever price they want. You can’t just use numbers from yahoo finance to draw these conclusions.

[Fairway14]

5 minutes ago, pinestreetgolf said:

It’s not the price today. It’s the price when the boards approved the merger. We have no idea when that was or what price was used.  They can issue stock for whatever price they want to whomever they want for whatever price they want. You can’t just use numbers from yahoo finance to draw these conclusions.

 

Below is the press release from Callaway. This appears to be a merger more so than an acquisition. Callaway is basically doubling it's share count to pay for TopGolf.

Due to Callaway's recent acquisitions the company already had a highly leveraged balance sheet, so going forward I expect the TopGolf division will need to be profitable or it could put Callaway in an alarming financial condition. I think this week's 25% decline in Callaway's stock price is evidence that Wall Street seriously questions the merits of this acquisition/merger.

 

* CALLAWAY AND TOPGOLF TO COMBINE, CREATING A GLOBAL GOLF AND ENTERTAINMENT LEADER

* DEAL FOR $2 BILLION

* CALLAWAY AND TOPGOLF WILL COMBINE IN AN ALL-STOCK TRANSACTION

* CALLAWAY WILL ISSUE APPROXIMATELY 90 MILLION SHARES OF ITS COMMON STOCK TO SHAREHOLDERS OF TOPGOLF

* CALLAWAY SHAREHOLDERS WILL OWN ABOUT 51.5% AND TOPGOLF SHAREHOLDERS WILL OWN APPROXIMATELY 48.5% OF COMBINED COMPANY

* COMBINED COMPANY'S BOARD WILL CONSIST OF 13 DIRECTORS, INCLUDING THREE DIRECTORS APPOINTED BY TOPGOLF SHAREHOLDERS

* CHIP BREWER WILL CONTINUE TO LEAD COMBINED COMPANY AS PRESIDENT AND CHIEF EXECUTIVE OFFICER

* DOLF BERLE WILL CONTINUE TO LEAD TOPGOLF BUSINESS THROUGH A TRANSITION PERIOD FOLLOWING CLOSE OF TRANSACTION

* JOHN LUNDGREN WILL CONTINUE AS CHAIRMAN OF BOARD OF COMBINED COMPANY

* SEES Q3 NET SALES $476 MILLION

* SEES Q3 NON-GAAP EARNINGS PER SHARE $0.60

* Q3 EARNINGS PER SHARE VIEW $0.29, REVENUE VIEW $445.6 MILLION -- REFINITIV IBES DATA Source text for Eikon: Further company coverage:

[Fairway14]

2 hours ago, Medson said:

What exactly is Callaway buying for $2B, i.e. customer base, physical properties, brand, etc?

 

Callaway and TopGolf management have agreed to value TopGolf at $2 billion. Once the deal is executed Callaway will own 51% of TopGolf (on paper worth $1.1 billion). TopGolf management/founders/investors etc.. .will own the remaining 49% of TopGolf.

You answered your own question, yes, TopGolf is physical properties, brand etc...

[pinestreetgolf]

4 minutes ago, Fairway14 said:

 

Below is the press release from Callaway. This appears to be a merger more so than an acquisition. Callaway is basically doubling it's share count to pay for TopGolf.

Due to Callaway's recent acquisitions the company already had a highly leveraged balance sheet, so going forward I expect the TopGolf division will need to be profitable or it could put Callaway in an alarming financial condition. I think this week's 25% decline in Callaway's stock price is evidence that Wall Street seriously questions the merits of this acquisition/merger.

 

* CALLAWAY AND TOPGOLF TO COMBINE, CREATING A GLOBAL GOLF AND ENTERTAINMENT LEADER

* DEAL FOR $2 BILLION

* CALLAWAY AND TOPGOLF WILL COMBINE IN AN ALL-STOCK TRANSACTION

* CALLAWAY WILL ISSUE APPROXIMATELY 90 MILLION SHARES OF ITS COMMON STOCK TO SHAREHOLDERS OF TOPGOLF

* CALLAWAY SHAREHOLDERS WILL OWN ABOUT 51.5% AND TOPGOLF SHAREHOLDERS WILL OWN APPROXIMATELY 48.5% OF COMBINED COMPANY

* COMBINED COMPANY'S BOARD WILL CONSIST OF 13 DIRECTORS, INCLUDING THREE DIRECTORS APPOINTED BY TOPGOLF SHAREHOLDERS

* CHIP BREWER WILL CONTINUE TO LEAD COMBINED COMPANY AS PRESIDENT AND CHIEF EXECUTIVE OFFICER

* DOLF BERLE WILL CONTINUE TO LEAD TOPGOLF BUSINESS THROUGH A TRANSITION PERIOD FOLLOWING CLOSE OF TRANSACTION

* JOHN LUNDGREN WILL CONTINUE AS CHAIRMAN OF BOARD OF COMBINED COMPANY

* SEES Q3 NET SALES $476 MILLION

* SEES Q3 NON-GAAP EARNINGS PER SHARE $0.60

* Q3 EARNINGS PER SHARE VIEW $0.29, REVENUE VIEW $445.6 MILLION -- REFINITIV IBES DATA Source text for Eikon: Further company coverage:

read my post earlier in the thread.  It’s a section 368 merger.

 

we know the price. We don’t know the number of shares.

[Fairway14]

6 minutes ago, pinestreetgolf said:

read my post earlier in the thread.  It’s a section 368 merger.

 

we know the price. We don’t know the number of shares.

 

Callaway issuing a press release stating the company will issue approximately 90 million shares is false, fake news?

* in my previous post I copied and pasted Callaway's press release.

[lefthack]

8 hours ago, Rory4Pres said:

 

Wouldn't be surprised if top golf was in debt to their eye balls, especially with the pandemic killing sales for them this year.  Callaway probably bit the bullet short term in hopes of long term growth.

 

I've not been to one, but a daughter of a coworker works there and said bring closed for about 3 months and now only being open limited has been a killer.

 

I hope for the best, it seems like a cool idea and way better as a company outing than bowling.