In a perhaps not-so surprising move, Topgolf Callaway Brands (NYSE: MODG) today announced that its Board of Directors intends to “pursue the separation’’ of its business into two independent companies: Callaway, in golf equipment with a highly complementary Active Lifestyle business, and Topgolf, its golf entertainment business.
The announcement came after the close of today’s trading on Wall Steet. MODG closed at $10.76 per share after opening at $10.33. In after-hours trading, the company’s stock was trading at above $11 per share.
The company said it expects to effect the separation through a spin-off of the Topgolf business to Topgolf Callaway Brands’ shareholders in a transaction that is intended to be tax-free to it and its shareholders for U.S. federal income tax purposes.
While the Company expects that a spin-off of Topgolf into a stand-alone public company is the most likely separation path, the Company said will continue to evaluate other options for separation to maximize shareholder value.
“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,,’’ Topgolf Callaway Brands President/CEO Chip Brewer said. “We believe this business, on a stand-alone basis, will be well understood and valued by the market.
“Since our merger with Topgolf (in March 2021), 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.’’