Topgolf Callaway Brands announced on Wednesday that it plans to spin off its two primary brands, Callaway Golf and Topgolf, into two separate, independent companies.

“Over the last decade plus, we have transformed Callaway into the No. 1 brand in golf equipment, while building a successful and complementary apparel and accessory business,” said Chip Brewer, Topgolf Callaway Brands president and CEO in a statement. “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 cashflow 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.”

The surprise announcement comes after a year that’s seen Topgolf Callaway Brands stock price drop more than 24 percent since January.

Topgolf transformed the driving range business by mixing game play with sports bar-level entertainment and hospitality. It now includes more than 100 U.S. and international venues. In addition to the company’s namesake golf equipment, which currently sits as the No. 1 brand in club sales in the U.S. and the No. 2 ball brand, Callaway’s business portfolio includes Odyssey putters, the Ogio accessories brand, the Travis Mathew apparel brand, the Jack Wolfskin outdoor apparel and equipment brand and the Toptracer ball flight analytics and gaming technology brand.

Callaway had been an early investor in Topgolf with as much as a 14-percent stake in the business at one time since originally investing in the company in 2006. The two companies announced a merger in October of 2020, finalising the agreement the following March.

Brewer said at the time, “Callaway and Topgolf are just better together. Callaway’s leadership in the global golf equipment market and geographic diversity, combined with Topgolf’s revolutionary technology platform and access to golfers of all abilities, will allow both companies to accelerate growth and create competitive advantages. This transformational merger has already created and will continue to create meaningful shareholder value. We are very excited to begin this next chapter and I cannot wait to see what we can accomplish together.”

Since that merger was finalized, Topgolf Callaway Brands’ share price has gone from $28.60 to $10.76 at closing Wednesday. In after-hours trading, Topgolf Callaway Brands share price was one of the biggest movers, according to CNBC, gaining more than 4 percent.

The spin-off plan does not require existing shareholder approval.

In recent financial reports, Topgolf’s same-venue sales were down 8 percent in the first six months of 2024 vs. the same period in 2023. Just a month ago, Brewer indicated that the overall Topgolf Callaway Brands business was strong, including Topgolf on its own, but not yielding enthusiasm from investors.

“As we look forward, we remain convinced that Topgolf is a high-quality business with significant future opportunity,” Brewer said. “It is transforming the game of golf, and we believe it will deliver substantial growth and financial returns over time.

“At the same time, we have been disappointed in our stock performance for some time, as well as the more recent same-venue sales performance. As a result, we are in the process of conducting a full strategic review of Topgolf. This review includes the assessment of organic strategies to return Topgolf to profitable same-venue sales growth, as well as inorganic alternatives, including a potential spin of Topgolf.”

According to the financial statements, the separation of the two companies could be finalized in the second half of 2025, potentially by July 1. The company’s statement notes that it intends to spin off at least 80.1% of Topgolf “to obtain the desired tax-free treatment of the spin-off for tax purposes and will also consider retaining a limited ownership in Topgolf for a period of time.” Topgolf would have a cash balance of more than $200 million and no debt under the new structure, with Callaway expected to absorb all of the current joint entity’s financial debt.

Brewer indicated that the spin-off of the Topgolf business could include the opportunity to possibly sell off Topgolf although the spin-off into a separate business “would be the most likely path forward.”

“We have evaluated all of the options in front of us and we’re viewing the spin as attractive and that it’s likely to create significant shareholder value,” Brewer said, noting that in the ensuing nine to 12 months while the separation plan is being finalized, “if there is an identified and actionable path that could include a sale or another path that is more attractive for shareholders, we will obviously explore that path.

“Our primary and most likely path is the spin, and we believe that will create significant shareholder value. But we are both open to considering and we will explore other strategic options.”

The plan would be for the Callaway Golf business to include the Toptracer technology that the company has developed to enhance standard driving ranges by providing launch data and game-playing aspects. While the Toptracer technology feels more akin to the Topgolf business, Brewer explained that selling Toptracer technology to driving ranges means its clientele is more aligned with the golf equipment side, not the golf entertainment venue side.

“First of all, the customer base that we sell to is essentially driving ranges, and that customer base overlaps with Callaway’s customer base. and therefore, it would be more effective to drive future growth and efficiency and synergies with that alignment,” Brewer said. “Secondly, the end-user of Toptracer is avid golfers and the ability to engage with those avid golfers in a deep and successful manner going forward aligns best with Callaway, as well.”

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