Global Edition

Callaway focused on turnaround, not sale

8.45am 8th August 2005 - Corporate

Reuters reports: Callaway Golf Co. is worth substantially more than buyout bids valuing it near $1.2 billion, new chief executive George Fellows said on Friday, noting that the board had charged him with turning around the business, not engineering a sale.
Fellows, who Callaway named as chief executive earlier in the week, told Reuters the board wanted him to restore profitability and boost the company’s stock, which is still down by about 40 percent from its highs of 2001.
When asked whether two recent buyout bids that valued the maker of the Big Bertha line of clubs at around $16 per share were too low, Fellows said: “Substantially, yes. All of that conjecture in the press and everything else is fairly irrelevant really. It is not our focus.”
Callaway has acknowledged receiving unsolicited takeover interest from outside parties but previously said no firm bids were under consideration. The company has not provided details on the bids.
Last week The Los Angeles Times reported that private equity firm Bain Capital and golf company MacGregor Golf offered an all-cash bid of around $1.24 billion for Callaway.
The second bid followed an unsolicited, all-cash $1.2 billion takeover bid in June from private equity firm Thomas H. Lee Partners and insurance mogul William Foley. That reported cash offer of $15.73 a share was slightly less than the Bain and MacGregor offer. It was also above Callaway’s closing share price of $15.24 on Friday.
The takeover speculation comes as Callaway seeks to regain market share lost to rivals offering lower-priced products like TaylorMade, and follows last year’s ouster of former chief executive Ron Drapeau after a string of weak results. Drapeau was the hand-picked successor to company founder Ely Callaway and took over as chief executive in June 2001, a month before Callaway died of cancer.
But in tapping Fellows, who was CEO of Revlon Inc. analysts say Callaway has chosen a leader with critical experience in the consumer products industry.
Alexander Paris, an analyst at Barrington Research, said as a shareholder he also regarded the takeover bids as undervalued given Callaway’s brand and potential for growth. “I would not want to see them sell at this price,” Paris said. “I would want to see them get the company turned around then look at if you want to go private.”
Fellows said Callaway needed to better anticipate what consumers want and fix problems in the supply chain that have prevented Callaway from meeting retail demand for its clubs.
He also acknowledged the company missed a recent trend toward oversized heads in woods but said products unveiled this year had helped to address that. “We introduced some very successful products this year that from a consumer point of view were very well received but we had some supply chain problems and were unable to fulfil those requirements,” Fellows said. “These are problems that are very fixable but were very disappointing.”
He cited the 454 driver and the HX 56 Ball as recent new products that would help the California-based company catch up with its rivals in the woods and ball business.
Callaway is the leading player in irons but has lost its top position in high-margin woods and struggled with costs related to its purchase of Top-Flite, which the company bought in 2003 to reverse losses in its own golf ball business.
But there are signs the company is finding its footing. Last month, it reported improved quarterly results as profit rose on strong demand for putters and irons and rebounding business in Japan.
Callaway also said it did not anticipate dealing with the kind of discounting issues that forced the company to cut prices in 2004 to clear inventory.

In related news... (GBN) is for the many thousands of people who work in the golf business all around the world.

We cover the full range of topics both on and off the course. We aim to supply essential information both quickly and accurately in a format which is easy to use. We are independent of all special interest groups.


Click here to sign up for our free twice weekly golf industry news summary

View the latest newsletter here