K2 in Talks to Acquire Rawlings
K2 Inc. is making a pitch for Rawlings Sporting Goods Co., one of America’s oldest suppliers of baseball gloves and equipment, a move designed to make the Los Angeles-based snowboard and ski manufacturer a company for all seasons.
K2, which sells Olin skis, Ride and Morrow snowboards as well as Shakespeare fishing gear, confirmed Wednesday that it has been in talks to take over 115-year-old Rawlings, of Fenton, Mo., since last month. Details of the discussions weren’t disclosed.
“We are looking for a business that is counter-cyclical to our other brands,” said Richard Heckmann, K2’s chairman and chief executive.
Rawlings is among the most recognizable brand names in baseball, according to Craig Levra, chief executive of Sport Chalet Inc., the La Canada Flintridge-based chain of sporting goods stores.
Brothers Alfred and George Rawlings founded the company in 1887 as a retail store in St. Louis and eventually made a number of important equipment innovations that changed the way America’s most popular sports are played.
Although known for its association with baseball -- most major league players use Rawlings fielding gloves -- 100 years ago the company developed the first shoulder pads for football. Later, it made the first baseball glove with a pocket between the thumb and fingers.
In recent years, investors have waited for Rawlings to leverage its premium brand name and long association with the national pastime into a bigger company, said Anthony Palma, chief executive of Van Nuys-based Easton Sports Inc., a major manufacturer of baseball and hockey equipment.
Yet Rawlings has seen almost no growth, Palma said. The company went public in 1994.
Rawlings’ sales of $173.7 million in its 2002 fiscal year were only slightly higher than the $170.6 million it posted in 1998. It earned $3.4 million last year, which was double its 2001 earnings. But the company lost a combined $16 million in 1999 and 2000.
It was not certain whether K2 will be able to score with the venerable baseball company. Key terms of the deal -- believed to be a stock transaction -- are to be determined and Rawlings plans to consider other alternatives, according to K2.
Rawlings said in November that it was talking to a suitor but did not disclose it was K2. However, after learning acquisition talks were underway, Rawlings’ largest shareholder, Daniel Gilbert, offered to pay $8 a share in cash for the company, or about $65 million. Gilbert, who owns 14% of Rawlings, said he may go higher, depending on his due diligence review of the company’s operations.
On Wednesday, Rawlings shares rose 19 cents to $8.24 on Nasdaq. The stock has gained 175% this year.
Rawlings has said that it will consider Gilbert’s proposal. But on Wednesday the company wasn’t talking about either offer. Chairman and CEO Steve O’Hara did not return calls.
For Heckmann, a Rawlings acquisition would fit with his plans to expand K2 into a major sporting goods maker by gobbling up multiple brands. The strategy is similar to what he pursued as head of water company US Filter, which he built into a multibillion-dollar firm before selling it to French utility and entertainment conglomerate Vivendi Universal for $6.2 billion in 1999.
K2 has annual sales of about $600 million. It swung to a profit of $3.9 million in the third quarter from a loss of $10.7 million a year earlier. Sales rose slightly to $149.8 million in the quarter from $148.1 million the previous year.
“Rawlings sells to the same retailers that we sell our lines to,” said Heckmann, who has been K2’s chairman since April 2000 and became CEO in October.
K2 shares fell 11 cents to $10.25 on the New York Stock Exchange.
