Callaway to Buy Rival Golf Firm Top-Flite

Callaway Golf Co. agreed Monday to buy ailing club and ball maker Top-Flite Golf Co. for about $125 million.

Callaway, the Carlsbad, Calif.-based maker of Big Bertha drivers and other high-end clubs, said the proposed deal was part of a Chapter 11 bankruptcy filing by privately held Top-Flite, based in Chicopee, Mass.

Formerly known as Spalding Sports World, it changed its name after selling the Spalding line to Russell Corp. in April.

The acquisition would give Callaway access to a broader range of golfers, as Top-Flite, which owns the Ben Hogan and Strata brands, makes gear not only for the high-end market but also for value-conscious shoppers.

Callaway said that buying Top-Flite also could help the company become a major player in the golf ball business, where Top-Flite is a leading brand along with the likes of Titleist, a division of Fortune Brands Inc.

By consolidating Top-Flite’s ball operations with its own, Callaway sees a “solution to the profitability drain that has dogged our golf ball business,” Callaway Chairman and Chief Executive Ron Drapeau said in a statement.

Art Bonnel, who manages the $80-million Bonnel Growth Fund, which owns shares of Callaway, said the company “should do quite well with it once we get an uptick in the economy.”

“What they’re doing is eliminating a competitor and giving themselves additional market share.”

Callaway executives couldn’t be reached to say whether the company would make the purchase with cash or a combination of cash and securities, and whether there would be any job cuts at Callaway.

The company has about 2,300 employees.

Callaway said in a statement that the deal calls for it to buy the Top-Flite assets “free and clear of any existing debt and most other liabilities.” That “should permit us to reverse the recent decline of the Top-Flite brand in the golf ball marketplace,” Drapeau said.

Top-Flite spokeswoman Lynn Luczkowski said the company expected its workforce, currently numbering about 1,000, to be shaved by about 5%. Most of its workers are in Massachusetts.

Callaway said it would merge its club manufacturing and research and development operations with those of Top-Flite.

That would create charges against Callaway’s earnings of as much as $70 million, to be taken over the next several months, the company said.

The $6-billion golf retail industry is barely growing amid the weak economy, waning interest among some players and unusually wet golf seasons in recent years.

That has led to slumping sales for clubs, balls, gloves and other equipment.

U.S. sales of golf club sets dropped 20% last year, to $1.6 billion, and golf ball sales slipped 2.3% to $893 million, according to the National Sporting Goods Assn.

Callaway virtually invented the market for drivers and other clubs with oversized heads, or hitting faces, and the clubs can cost several hundred dollars apiece.

The company has struggled with the rest of the industry. Its sales in 2002 fell 3% to $792 million from $816 million the previous year.

It rebounded in this year’s first quarter, with earnings that jumped 38% from a year earlier on a 5.8% sales gain. But even Callaway cautioned that those trends might not continue throughout the year.

Callaway’s shares have risen lately amid the market’s rebound.

Callaway closed Monday at $13.22 a share, down 12 cents, on the New York Stock Exchange before the Top-Flite announcement was made.

Jim Craigie, Top-Flight’s chief executive, said Top-Flite needed to sell to Callaway, considering the strength of its rivals and market conditions.

Even if Top-Flite were to eliminate its hefty debt load, he said in a statement, it “could not survive in the current marketplace against existing strong competitors.”

The deal remains subject to approval by the U.S. Bankruptcy Court, but the companies said they expected the transaction to close this year.

Bloomberg News was used in compiling this report.