Callaway Golf Co (NYSE: ELY) stock surged 14.40% on June 13th, 2019 (Source: Google finance) after activist investment firm Jana Partners disclosed that it holds a 9.2% stake in the company and intends to discuss with Callaway selling all or part of the golf equipment and apparel maker. The stock slightly corrected over 1.7% on June 14th, 2019 (as of 12:40 pm GMT-4; Source: Google finance)
Barry Rosenstein, founder of JANA Partners, also wants to discuss the portfolio composition, strategic alternatives, capital allocation and acquisition strategy; operating performance and cost management and governance. JANA Partners’ position would make it the company’s second-largest shareholder behind BlackRock, based on the most recent government filings.
The firm said that Callaway’s stock was still undervalued, even though Callway was “driving innovation and durable market share gains in its core golf business.” Jana’s investment comes only months after Callaway, based in Carlsbad, California, completed its roughly $476 million acquisition of German outdoor apparel company Jack Wolfskin in January. The acquisition revealed a key component behind Callaway’s and Brewer’s long-term strategy. A leader in global golf equipment sales, the company has in recent years embarked on a brand-building sprint, including the X Hot and X2 Hot line of fairway woods and a reintroduction of the Big Bertha driver. It’s also tried to bolster its standing in the golf ball segment with its Triple Tack Technology and new ERC golf ball, running into fierce competition from leader Titleist. In addition, several other individual investors are backing Jana’s attempts to boost the company’s value. Among them is Cynthia Davis, a former Nike (NKE) executive who served as president of the sporting giant’s golf division
Meanwhile, ELY has recently announced that its Tokyo-based subsidiary, Callaway Golf K.K., acquired the remaining 48% stake in Callaway Apparel K.K., an apparel joint venture between Callaway and its long-time partner, TSI Groove & Sports Co, Ltd. Effective June 1st, Callaway Golf K.K. owns 100% of Callaway Apparel K.K., which designs, manufactures and sells Callaway branded apparel, footwear, and headwear in Japan. Callaway Golf K.K. acquired the 48% minority interest for 2 Billion Yen, or approximately $18 million based upon a 109 US Dollar to Yen exchange rate. This purchase price values Callaway Golf K.K. at approximately 9 times 2019 projected EBITDA. Further, the joint venture began operations on July 1st, 2016 with its headquarters in Tokyo, Japan. Callaway owned 52% of the joint venture and TSI Groove & Sports Co, Ltd. owned 48%. TSI had previously partnered with Callaway as a licensee, helping to successfully launch and grow that business since 2002.