Cobra Golf, American Brands Agree to Merge : Recreation: Deal would join driver maker with manufacturer of Titleist clubs and balls.
Cobra Golf Inc., one of the nation’s leading makers of golf clubs, said Monday that it agreed to be acquired by American Brands Inc. for $700 million.
The $36-a-share deal would expand both companies’ presence in the golf market. Carlsbad, Calif.-based Cobra manufactures high-quality, premium-priced clubs; American Brands makes Titleist clubs and balls, and Foot-Joy golf shoes.
Such a combination--by offering products reaching many segments of the market--would be a formidable competitor to Callaway Golf Co., also based in Carlsbad and the industry leader with 18% of club sales, thanks to the huge popularity of its Big Bertha line. Cobra, with a 17% market share, specializes in oversized and graphite-shafted clubs sold under the King Cobra name that primarily target women and golfers with high handicaps. Titleist, which holds 5% of the golf club market, manufactures irons for more skilled players.
“It’s a great day for both American Brands and Cobra as we see two of the very best brand names in golf coming together,” said American Brands Chief Executive Thomas Hays. “Cobra and Titleist complement each other . . . with very little overlap. So, we intend to build both brands up.”
American Brands will provide greater financial resources for the advertising that Cobra needs to promote its new lines, analysts said. Next year, for example, Cobra will introduce a new, lighter, titanium oversized driver. Star golfer Greg Norman used a prototype of the model to win the Australian Open.
Analysts said the Cobra-Titleist merger will drive Callaway to cut its prices on irons to retain its share of the market.
“Unlike Cobra and Titleist, Callaway derives most of its sales from wood clubs,” explained Shelley Hale Young, an analyst with Hambrecht & Quist. “So, Callaway may be able to cut their prices on irons to compete in the realigned market.”
Cobra had sales of $124 million in 1994, but has shown slow growth in the last six months.
Cobra shares soared $7.875 to close at $35.50 on the Nasdaq market, while American Brands fell $2.25 to $44.125 on the New York Stock Exchange.
Analysts said the Cobra deal is consistent with American Brands’ strategy of selling unprofitable businesses and acquiring leading brand names.
American Brands, which also makes Jim Beam bourbon and Master Locks, had been expected to acquire another brand name after switching its focus to consumer products earlier this year. The Old Greenwich, Conn.-based company sold American Tobacco Co. and Franklin Life Insurance, but held on to the British-based Gallaher tobacco business.
“American Brands divested their tobacco and insurance lines and are now investing in areas which promise high return and fast growth,” said analyst Terry Bivens of Donald & Co. Securities. “The entire golf market will see a nice stimulus because of the move.”
