Callaway draws interest of activist investors who claim company is 'undervalued'

June 13, 2019
GOLF: AUG 17 PGA - Wyndham Championship

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Callaway Golf is facing an activist investor group that wants the company’s management and board of directors to consider “strategic alternatives including exploring a sale or asset divestitures.”

The news came with an SEC Schedule 13D filing, led by JANA Partners, a New York-based activist investment firm that last year pressured Apple over the iPhone’s effects on children. In a Schedule 13D filing, an individual or group that acquires five percent or more of a company’s outstanding shares must notify the SEC. Today’s filing showed that JANA Partners and three individual investors have acquired 9.5 percent of Callaway’s shares.

The news this morning pushed Callaway’s stock price up dramatically, more than 14 percent through 11:30 a.m. ET. It would mark the first time since November that Callaway’s stock price was over $18. The price dropped shortly after the company announced it had acquired German outdoor wear company Jack Wolfskin on Nov. 30 for $476 million.

In the Schedule 13D papers, the investor group announced that “JANA believes that, despite [Callaway’s] success in driving innovation and durable market share gains in its core golf business, other factors have caused [it] to underperform and remain undervalued. JANA ... intends to have discussions with [Callaway’s] board of directors and management regarding the [its] portfolio composition; strategic alternatives including exploring a sale ... or asset divestitures; capital allocation and acquisition strategy; operating performance and cost management; and governance.”

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Intriguing is that JANA’s investment group includes Cindy Davis, former president of Nike Golf. Davis, 56, is currently a director on several boards, including Buffalo Wild Wings and Deckers Brands. Davis announced her retirement from Nike in October 2014, and less than two years later the company exited the golf club and ball business.

Also in the group joining with JANA is James Lillie, former CEO of the Jarden Company, a consumer products company which owned the Sunbeam and Coleman brands and recently was sold for $20.5 billion. Roger Farah, chairman of the board of Tiffany & Co., is the third individual joining JANA on the Schedule 13D filing. The group acquired 8.9 million Callaway shares over the last month or so for over $140 million.

“It is not our practice to discuss individual shareholders,” said a Callaway spokesman. “It is, however, the Board and Management’s practice to meet with shareholders to discuss the company’s strategy in accordance with SEC regulations.” JANA’s stake makes it Callaway’s second-largest individual shareholder.

JANA Partners was founded by Barry Rosenstein in 2001 and is characterized as an activist investor. It has repeatedly taken aggressive positions in companies to redirect the business. According to Reuters, its “main business [is] pushing companies to make financial changes that often include recapitalizing or restructuring the business.”

Callaway announced record first-quarter sales in May of $516 million, a 28 percent increase compared to the first quarter of 2018. However, the company’s stock price has dropped since the purchase of the outerwear maker Jack Wolfskin. In May, the company lowered slightly Jack Wolfskin’s contributions to earnings in 2019.

Callaway President and CEO Chip Brewer explained, “We believe these are short-term issues, and we remain excited about this business for the long term. ... We’re also finding more potential synergies across our soft goods business as well as long-term opportunities in key markets such as China, Japan and North America that are at or above the initial expectations.”

Under Brewer’s leadership, Callaway’s stock price nearly quadrupled and the company annual sales have grown 49 percent. It has acquired the Ogio and Travis Mathew brands, and maintains approximately a 14-percent stake in fast-growing TopGolf, the driving range and golf entertainment business with 54 locations worldwide including 50 in the U.S.