CARLSBAD, Calif. - Topgolf Callaway Brands Corp. (NYSE: MODG) announced plans to separate into two distinct publicly traded companies. The golf and lifestyle brand aims to divide its business into Callaway, a golf equipment and active lifestyle company, and Topgolf, a venue-based golf entertainment enterprise. The intended separation is projected to be tax-free for U.S. federal income tax purposes.
Callaway, with revenues of approximately $2.5 billion over the last twelve months through Q2 2024, will retain its leading position in golf clubs and its number two position in golf balls. The portfolio will include brands such as Callaway, Odyssey, TravisMathew, OGIO, Jack Wolfskin, and Toptracer. The company anticipates significant free cash flow and the ability to reinvest in its market positions.
Topgolf, which has generated about $1.8 billion in revenue excluding Toptracer, is expected to continue as a leading golf entertainment company with over 100 venues worldwide. The business will focus on driving profitable venue sales growth, increasing operating margins, and pursuing new venue development.
The separation, expected to be completed in the second half of 2025, will allow both entities to operate with greater strategic focus and optimized capital allocation. The companies will enter into ongoing commercial agreements post-separation, with Callaway continuing as the exclusive golf equipment partner for Topgolf.
Chip Brewer, CEO of Topgolf Callaway Brands, emphasized the strategic rationale behind the decision, stating that the separation will position both entities to maximize shareholder value. Artie Starrs will continue to lead Topgolf, while Brewer will helm Callaway.
The company is considering retaining a limited ownership in Topgolf post-spin-off. The spin-off is subject to market conditions and regulatory approvals, including tax rulings from the Internal Revenue Service.
The announcement follows a comprehensive strategic review by the board and management, aiming to capitalize on the distinct business models and growth opportunities of each company. The detailed separation plans are under development and will be subject to final board approval.
The news comes amid a period of growth and transformation for the company, which has seen substantial investments in Topgolf's scale, digital capabilities, and venue profitability. The planned separation reflects the company's confidence in the future value creation opportunities of both businesses.
This report is based on a press release statement from Topgolf Callaway Brands Corp.
In other recent news, Topgolf Callaway Brands has been the focus of several significant developments. The company reported a mixed performance in their latest earnings report, with revenues reaching $1.14 billion and an EBITDA of $161 million, surpassing bottom-line estimates but falling short on the top-line. In response to these results, Jefferies downgraded the stock from Buy to Hold and reduced the price target to $12.00, citing concerns about the company's post-merger performance and financial health.
Simultaneously, the company has begun a strategic review, a move seen as potentially unlocking the company's value. This move led KeyBanc to adjust the stock rating from Overweight to Sector Weight, citing the ongoing softening of sales trends and the uncertainty surrounding the outcomes of the strategic review. However, both TD Cowen and Goldman Sachs revised their price targets for the company upwards to $13 and $15 respectively, reflecting a cautiously optimistic view of the company's future prospects.
Among these developments, Topgolf Callaway also announced a multiyear strategic partnership with Visa (NYSE:V). The collaboration aims to enhance the digital experience for its customers, introducing benefits for Cash App cardholders and early reservation access at Topgolf venues. The partnership spans across Topgolf Callaway's brands and includes co-branded sponsorships and special events designed to engage Topgolf's player base.
InvestingPro Insights
As Topgolf Callaway Brands Corp. (NYSE: MODG) prepares to split into two separate entities, investors are closely monitoring the company's financial health and market performance. According to InvestingPro data, MODG currently has a market capitalization of $1.97 billion. This valuation comes amidst a challenging period for the stock, with a Price to Earnings (P/E) ratio standing at a high 92.78, indicating a premium market valuation compared to earnings.
InvestingPro Tips suggest that MODG's stock price has experienced significant volatility, which could be a point of consideration for investors. The company's stock has seen a steep decline over the last six months, with a 27.32% drop in price. Moreover, the Relative Strength Index (RSI) suggests that the stock is in oversold territory, which might interest value investors or those looking for a potential rebound.
Despite recent performance challenges, there are positive indicators. MODG's liquid assets exceed its short-term obligations, which may provide some reassurance regarding the company's financial stability during the upcoming separation process. Additionally, analysts predict that the company will be profitable this year, which could be a sign of underlying business strength amid market fluctuations.
For investors seeking a more in-depth analysis, there are additional InvestingPro Tips available for MODG at https://www.investing.com/pro/MODG, offering detailed insights that could help in making informed investment decisions.
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