Callaway and Topgolf Are Separating, But It’s Not What You Think

Posted by Admin September 4, 2024 Golf

Topgolf Callaway Brands announced its intention to separate, but it’s not what you think.

In a press release today, the brand announced that its Board of Directors want to separate the business into two independent companies, hoping to part the two businesses into a format that will be more advantageous for future operations.

Callaway will continue as a golf equipment leader, while Topgolf will be a pure-play venue-based golf entertainment business.

The company said that it expects the separation to result in a “spin-off of Topgolf into a stand-alone public company” that will maximize shareholder value. This is the most likely path moving forward.

Chip Brewer, President and CEO of Topgolf Callaway Brands, said:

“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.”

Based on Brewer’s quote, it sounds like the businesses are, in a way, too different to justify staying together as one umbrella company. Additionally, it may make more sense to separate the two as they could create more value for shareholders, especially as Topgolf has seemed to truly outperform initial expectations.

The company listed the advantages of separating the two:

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.

Topgolf will become a spin-off company in the second half of next year, but this, at this time, is speculative.

The plan is to bring two, strong, and industry-leading businesses into the forefront instead of consolidating into one. Brewer believes employees and the brands will experience more growth due to this, along with more opportunity moving forward.

The move comes less than a month after Topgolf Callaway Brands said it was “disappointed with stock performance” and a lack of growth in sales.