By SCOTT HAMILTON
Senior WriterThough its parent company refuses to address the topic, Cleveland Golf appears on the verge of new ownership.
Industry sources say Quiksilver Inc., which acquired Cleveland in 2005 as part of a deal to buy ski-maker Rossignol, is in the final stages of unloading the golf equipment maker for roughly $60 million to $70 million. Some analysts say the price is a bargain, noting Cleveland likely is worth at least $100 million, but they add an expedient sale even at a discount is in Quiksilver’s best interests.
In June, the Huntington Beach, Calif.-based company, whose core business is surfing apparel, reported its first quarterly loss in 15 years. The setback mostly was attributed to its struggling hardgoods division, including Cleveland, which led Quiksilver CEO Robert McKnight Jr. to open the door to sale overtures. During a June conference call, he said management is “looking at every possible alternative concerning the hardgoods” and “everything is on the table.”
Since then, Quiksilver and Cleveland executives have remained mum, at least publicly. But two sources familiar with Quiksilver say it has charged J.P. Morgan Chase to find a buyer. A spokesperson for the financial services firm declined comment.
The silence, however, hasn’t stymied widespread speculation within industry circles about Cleveland’s fate. The rumor mill, working overtime, initially had nearly a dozen suitors interested in the clubmaker. But as summer shifts into fall, three acquisition scenarios seem most plausible:
• TaylorMade-Adidas Golf buys Cleveland to create a second price tier to complement its flagship offerings.
• Shoe and apparel maker Puma, which has raised its profile in golf by signing marquee endorsers such as Geoff Ogilvy, enters the equipment category with the acquisition.
• Cleveland president Greg Hopkins assembles an investor group to back a bid to regain control of the company.
While it’s unclear which of these scenarios or another will come to fruition, analysts predict some resolution soon.
“The perception out there is basically Quiksilver is going to give it away,” says Brad Stephens, an analyst for Morgan Keegan & Co. “It’s a little on the cheap side, but they need to just go ahead and get rid of it. In the whole scheme of things for a $2.5 billion apparel business (such as Quiksilver), it doesn’t mean much.”
Most prognosticators say TaylorMade-Adidas ultimately will pull off the deal. At least three sources confirm TMAG and Quiksilver have been in discussions. TMAG officials declined to comment, but the benefits of an acquisition are obvious: A TaylorMade-Cleveland pairing would give TMAG, at least on paper, a dynamic similar to Acushnet’s successful 1-2 punch of Titleist and Cobra.
TMAG also would gain access to Cleveland’s highly regarded wedge business.
But the deal would create duplication issues with Cleveland’s Never Compromise putter brand and Fidra apparel, which would appear to overlap with TMAG’s Rossa putter division and its Adidas Golf performance wear.
Others also caution that absorbing more brands could cause headaches for TMAG, which still is struggling both to reinvigorate its Maxfli brand and establish its TaylorMade ball brand. Nevertheless, TMAG remains the top contender.
“I think TaylorMade gets it done,” says Casey Alexander, a special situations analyst for Gilford Securities in New York, who also manages an investment fund that includes Quiksilver shares. “They’re genuinely interested and they can write the check. At $60 million or $70 million the price is right. Are they getting a company that’s having a down year? Unquestionably. But is it a decent brand at a decent price and a viable long-term opportunity? You bet ya, absolutely.”
One factor could hinder TMAG’s efforts.
Parent company Adidas may be hesitant to make another acquisition, considering its integration of Reebok hasn’t met analysts’ expectations since Adidas bought it for $3.8 billion in January 2006. John Shanley, an analyst for Susquehanna Financial Group, says another acquisition this soon could lead to investor grumbling.
“I’m not sure the overall timing is correct even for a relatively small acquisition such as this,” Shanley says.
The timing could be right for Puma, however, which has generated total sales of more than $1.4 billion this year.
An international force in other sports, Puma launched in early 2006 its golf division featuring apparel, footwear and accessories. It has secured endorsement deals with more than a half-dozen international male and female players. Industry observers say Puma views Cleveland as a relatively inexpensive means to enter the golf equipment arena.
Puma executives won’t address their alleged interest in the company, and skeptics say a marriage between the two would face the same irreconcilable differences that are on the verge of splitting Quiksilver and Cleveland: Little common ground and even less understanding of their respective – and vastly different – apparel and hardgoods businesses.
Meanwhile, for Cleveland employees, awaiting their fate is becoming increasingly taxing. Says one staffer: “It’s not the best situation here right now.”
But one outcome could alleviate such worries in a hurry.
Though it remains unconfirmed, industry talk persists that Hopkins, who spearheaded Cleveland’s impressive growth before its acquisition by Quiksilver, covets running the company as an independent entity. Many speculate that Hopkins, a former TaylorMade executive who nurtured a laid-back, successful culture at Cleveland, would dread seeing his beloved brand turned over to yet another conglomerate. An investor group may back him, but it’s unlikely it can outbid or execute a deal more quickly than TMAG. And for Quiksilver, time is precious.
Says an industry executive: “Hopkins can probably pull it off, but there is probably enough caveats that (make) TaylorMade so much more appealing to Quiksilver.”
Posted: 9/7/2007
print
email
discuss
