Separation Will Create a Leading Golf
Equipment and Active Lifestyle Company with Strong Free Cash Flow
and the Category Leading, High-Growth, Pure-Play Venue-Based Golf
Entertainment Business
Both Businesses Will Have Strong Balance
Sheets, Positive Free Cash Flow and the Required Scale to be
Leaders in Their Respective Markets
CARLSBAD, Calif., Sept. 4,
2024 /PRNewswire/ -- Topgolf Callaway Brands Corp.
(the "Company" or "Topgolf Callaway Brands," "we," "our," "us")
(NYSE: MODG) today announced that its Board of Directors intends to
pursue the separation of its business into two independent
companies: Callaway, a leader in golf equipment with a highly
complementary Active Lifestyle business, with last twelve months
revenue through Q2 2024 of approximately $2.5 billion (including Toptracer); and Topgolf,
a category leading, high-growth, pure-play venue-based golf
entertainment business, with last twelve months revenue through Q2
2024 of approximately $1.8 billion
(excluding Toptracer). The Company expects to effect the separation
through a spin-off of the Topgolf business to Topgolf Callaway
Brands' shareholders in a transaction that is intended to be
tax-free to both the Company and its shareholders for U.S. federal
income tax purposes. While the Company expects that a
spin-off of Topgolf into a stand-alone public company is the most
likely separation path, the Company will continue to evaluate other
options for separation to maximize shareholder value.
"Over the last decade plus, we have transformed Callaway into
the #1 brand in golf equipment, while building a successful and
complementary apparel and accessory business. We believe this
business, on a stand-alone basis, will be well understood and
valued by the market. Since our merger with Topgolf, we have
made considerable investments in the Topgolf business that have
dramatically expanded its scale, digital capabilities and venue
profitability. These investments, combined with the hard work
of the Topgolf team, have allowed us to outperform our original
growth and free cash flow expectations. Looking forward, we remain
convinced that Topgolf is a high-quality, free cash flow generating
business with a significant future value creation opportunity.
Topgolf is transforming the game of golf and is expected to deliver
substantial financial returns over time. At the same time,
Topgolf has a different operating model, capital structure and
investment thesis than Callaway, and as a result, the Board has
determined that separating Topgolf will best position Topgolf and
Callaway for success and maximize shareholder value," commented
Chip Brewer, President and Chief
Executive Officer of Topgolf Callaway Brands.
"Today's announcement is the result of a thorough strategic
review conducted by the Board of Directors and the management
team," said John Lundgren, Chairman
of the Board of Directors of Topgolf Callaway Brands. "The creation
of two independent companies, each with a distinct focus and proven
business model, is intended to drive continued momentum in both
businesses and deliver value to all our shareholders."
STRATEGIC RATIONALE
Following this strategic review, the Company has determined that
Callaway and Topgolf will be better served operating independently
from each other. The Company believes that creating two companies
will result in material benefits to the stand-alone businesses that
will maximize shareholder value, including:
- Enhanced Strategic Focus: This transaction will create
two strong, focused operating companies with industry-leading
market positions and a greater ability to align incentives with
performance and shareholder value creation.
- Optimized Capital Allocation: Callaway and Topgolf have
different free cash flow profiles and funding needs. The
separation will position both businesses to implement appropriate
capital investment, while maintaining an appropriate level of
leverage.
- Simplified Operating Structure: Simplifying the
operating structure of both businesses will improve execution and
organizational agility.
- Distinct Investment Thesis for Each Entity: As separate
businesses, Callaway and Topgolf will represent different and
compelling investment opportunities. Investors will have the
opportunity to support and invest in each business on the basis of
its distinct qualities, including its growth drivers, financial
profile and capital allocation framework. Furthermore, the
separation of Callaway and Topgolf will simplify financial
reporting for investors.
CREATING TWO STRONG COMPANIES
Callaway
Callaway will consist of the Company's
existing Golf Equipment, Toptracer and Active Lifestyle businesses.
These businesses generated revenue of approximately $2.5 billion for the last twelve months through
Q2 2024. Callaway maintains the #1 U.S. market position in
golf clubs, as well as a growing #2 position in golf ball.
Callaway's portfolio of leading brands will include Callaway,
Odyssey, TravisMathew, OGIO, Jack Wolfskin and Toptracer.
Callaway will be positioned to generate significant free cash flow,
reinvest in growing its market-leading positions and ultimately be
in a position to return capital to shareholders, while operating at
an appropriate level of leverage for its operations and financial
profile.
Topgolf
The Topgolf business will consist of the
Company's existing Topgolf business, with the exception of
Toptracer, which will be part of Callaway. With revenue of
approximately $1.8 billion in the
last twelve months through Q2 2024, Topgolf will continue to be the
category leading, pure-play venue-based golf entertainment company.
Its portfolio will initially include over 100 U.S. and
international venues. Topgolf's strategic priorities will remain
to: (1) drive profitable same venue sales growth, (2) increase
venue operating margins through further improvements in operating
efficiencies and (3) pursue new venue development, resulting in
meaningful revenue growth, bottom-line operating leverage and
accelerating profitability. Importantly, Topgolf will be
well-capitalized, with a significant cash balance and no financial
debt, positioning the company to continue to capture its long-term
growth opportunity.
Capital Structure and Ongoing Commercial
Agreements
The Company intends to spin off at least 80.1% of
Topgolf to obtain the desired tax-free treatment of the spin-off
for U.S. federal income tax purposes and will also consider
retaining a limited ownership in Topgolf for a period of
time. In connection with the separation, Callaway is expected
to retain all existing Topgolf Callaway Brands financial debt,
including both the term loan and the convertible notes. Topgolf
will retain its venue financing obligations, but will have no
financial debt, and be funded with a significant cash balance. To
appropriately balance growth and free cash flow during this
transition year, Topgolf intends to reduce its new venue
development plans for 2025 to a number in the mid-single digit
range. One of the advantages of Topgolf's current scale and
embedded free cash flow is this optionality of when and how to
build new venues, thereby allowing Topgolf to balance its mutual
goals of growth and positive free cash flow. Upon separation, the
Company expects both businesses will be capable of funding their
own respective growth opportunities, capital allocation priorities
and strategic plans.
In connection with the separation, the two companies are also
expected to enter into ongoing, value-creating commercial
agreements with one another. As an example, Callaway will continue
to be the exclusive golf equipment partner for Topgolf.
The Company expects limited dis-synergies as a result of the
separation.
Experienced and Proven Leadership
Callaway will
continue to be led by Chip Brewer,
Chief Executive Officer, and Topgolf will continue to be led by
Artie Starrs, Chief Executive
Officer of Topgolf.
NEXT STEPS
Management is developing detailed separation plans for further
consideration and final approval by the Company's Board of
Directors. While the Company expects that a spin-off of Topgolf
into a stand-alone public company is the most likely separation
path, the Company will continue to evaluate other options for
separation to maximize shareholder value.
The Company expects to execute the spin-off of Topgolf in the
second half of 2025, but there can be no assurance regarding the
ultimate timing or terms of the separation or that the separation
will ultimately occur. The Company may, at any time and for any
reason until the proposed transaction is complete, abandon the
separation or modify or change its terms, including the individual
businesses and components of each of the two companies. During this
period, further work on structure, management, governance and other
matters will take place. The Company will provide interim updates
as appropriate. Throughout the process, management will remain
focused on delivering strong business results, returning Topgolf to
same venue sales growth and increasing profits.
"Our employees' dedication and hard work has enabled us to take
this next step in the Company's evolution," said Chip Brewer. "Our Callaway and Topgolf
businesses both employ very talented and dynamic people. I am
confident that we will maintain the commitment to excellence that
has been key to our success." He continued, "The focus and other
benefits that come from creating two independent companies is
expected to provide even greater opportunities for our employees
and our brands."
Any transaction will be subject to general market conditions and
other customary conditions, including receipt of regulatory
approvals, an opinion from tax counsel and/or a private letter
ruling from the Internal Revenue Service regarding the tax-free
status of the spin-off of the Topgolf business to the Company and
its shareholders for U.S. federal income tax purposes, execution of
intercompany agreements, further due diligence as appropriate and
final approval by the Company's Board of Directors. Details of the
separation will be included in future filings with the Securities
and Exchange Commission.
The Company's financial advisors are Goldman Sachs and
Centerview Partners with Latham & Watkins LLP serving as legal
counsel.
ADDITIONAL INFORMATION AND DISCLOSURES
Conference Call and Webcast
The Company will be holding a conference call at 2:45 PM, Pacific Time, September 4, 2024, to discuss the planned
separation. The call will be webcast live on our investor relations
website. A replay of the conference call will be available
approximately two hours after the call ends. The replay may be
accessed through the Investor Relations section of the Company's
website.
Forward-Looking Statements
Statements used in this press release that relate to future
plans, events, financial results, performance, prospects, or growth
opportunities, including statements relating to the Company's
intended separation of the Topgolf business, the timing, terms and
method of the separation and the ownership percentage of Topgolf
that the Company intends to spin off, the anticipated benefits and
other effects of the separation, the expected financial and
operating performance of, and future opportunities for, each
company following the separation, the tax treatment of the
transaction, the expected capital structures of, and commercial
agreements between, the companies following the separation, the
expectation that Callaway will be the exclusive golf equipment
partner for Topgolf following the separation, Topgolf's new venue
development plans, and the leadership of each company following the
separation, are forward-looking statements as defined under the
Private Securities Litigation Reform Act of 1995. The words
"believe," "expect," "estimate," "could," "would," "will,"
"should," "intend," "may," "plan," "seek," "anticipate," "project"
and similar expressions, among others, generally identify
forward-looking statements, which speak only as of the date the
statements were made and are not guarantees of future performance.
These statements are based upon current information and
expectations. Accurately estimating the forward-looking statements
is based upon various risks and unknowns, including the final
approval of the separation by the Company's Board of Directors; the
uncertainty of obtaining regulatory approvals in connection with
the separation, including rulings from the Internal Revenue
Service; the ability to satisfy the necessary closing conditions to
complete the separation on a timely basis, or at all; the Company's
ability to successfully separate the two companies and realize the
anticipated benefits of the separation; potential negative effects
of the announcement or pendency of the transaction on the market
price of the Company's securities and/or on the financial
performance of the Company; the possibility of disruption,
including changes to existing business relationships, disputes,
litigation, or unanticipated costs in connection with the
transaction; uncertainty regarding global economic conditions,
including relating to inflation, decreases in consumer demand and
spending, and any severe or prolonged economic downturn; the
Company's level of indebtedness; continued availability of credit
facilities and liquidity and ability to comply with applicable debt
covenants; effectiveness of capital allocation and cost/expense
reduction efforts; continued brand momentum and product success;
growth in the direct-to-consumer and e-commerce channels; ability
to realize the benefits of the continued investments in the
Company's business; consumer acceptance of and demand for the
Company's and its subsidiaries' products and services; any changes
in U.S. trade, tax or other policies, including restrictions on
imports or an increase in import tariffs; future retailer
purchasing activity, which can be significantly negatively affected
by adverse industry conditions and overall retail inventory levels;
the level of promotional activity in the marketplace; and future
changes in foreign currency exchange rates and the degree of
effectiveness of the Company's hedging programs. Actual results may
differ materially from those estimated or anticipated as a result
of these risks and unknowns or other risks and uncertainties,
including the effect of terrorist activity, armed conflict, natural
disasters or pandemic diseases on the economy generally, on the
level of demand for the Company's and its subsidiaries' products
and services or on the Company's ability to manage its operations,
supply chain and delivery logistics in such an environment; delays,
difficulties or increased costs in the supply of components or
commodities needed to manufacture the Company's products or in
manufacturing the Company's products; and a decrease in
participation levels in golf generally. For additional information
concerning these and other risks and uncertainties that could
affect these statements and the Company's business, see the
Company's Annual Report on Form 10-K for the year ended
December 31, 2023 as well as other
risks and uncertainties detailed from time to time in the Company's
reports on Forms 10-K, 10-Q and 8-K subsequently filed with the
Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no
obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
About Topgolf Callaway Brands
Topgolf Callaway Brands Corp. (NYSE: MODG) is an unrivaled
tech-enabled Modern Golf and active lifestyle company delivering
leading golf equipment, apparel, and entertainment, with a
portfolio of global brands including Topgolf, Callaway Golf,
TravisMathew, Toptracer, Odyssey, OGIO, Jack Wolfskin, and World
Golf Tour ("WGT"). "Modern Golf" is the dynamic and inclusive
ecosystem that includes both on-course and off-course golf. For
more information, please visit
https://www.topgolfcallawaybrands.com.
Investor Contact
Katina
Metzidakis
invrelations@tcbrands.com
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SOURCE Topgolf Callaway Brands Corp.
