Callaway Golf (ELY: NYSE) has called a special meeting for its shareholders. The company recently completed a $140 million convertible preferred stock offering, however the New York Stock Exchange has informed Big Bertha that it requires shareholder approval even though the deal is already completed. At the upcoming meeting, September 10, 2009, the shareholders will be asked to vote to approve the private offering. The convertible feature in the deal represents the potential of additional shares of Callaway common stock being issued, which would be dilutive to current owners of the stock. If shareholder approval is not obtained by September 13, 2009, then the company is subject to certain penalties.
Its highly unlikely that the company won’t be approved with the vote, but its worth pointing out that its stock price closed last week at $4.89 a share, a new 52-week closing low for it. The current market capitalization (number of shares outstanding multiplied by its stock price) values the business at a little more than $315 million. The preferred offering, which came about so that Callaway could pay down its credit line since it was feared it may fall out of compliance with the terms of its credit facility, now represents nearly half the value of the business or perhaps more if the stock price continues to free fall. For those who are inclined to talk up another round of potential take over rumors, any such deal would require the inclusion of the $140 million in the buying price. Therefore, it might cause some institutional shareholders to pause momentarily before casting their vote in favor of the company’s request to approve its recent deal as the NYSE has requested.

Sounds like they are trying to create new capital for a heavily de-valued stock, kind of like printing new money.

I am not enough of an expert to know what this really means though, I would love to hear your thoughts

Noelsy

No company would like to issue new stock when their shares are not worth much, but because Callaway's financials are suffering so much, they are starting to run into trouble with their credit facility covenant requirements. So to avoid any problems with the banks, they are raising money from investors in the form of preferred shares and then will use the proceeds to pay down their debt. Big win for the investors if Callaway can turn things around and increase the share price, and in the meantime collect 7.5%.

Existing common shareholders have to approve the deal because it has the potential to significantly dilute their current ownership levels if the new preferred shares are converted into common shares.

All just financial mumbo jumbo No real implication to awesome golf products!

Thanks for the reply.
I love the Callaway Tour I, and regardless of what people may or may not like about Callaway, they have been innovators that have greatly benefitted golf technology in my opinion. I hope they continue on and do well.
They have stepped out, like the with the hex dimple pattern, etc... and really taken technology to a new level for golf.

Thanks again

Noelsy

I will give them $100 for thier Hogan brand rights, think that would help them any?

Yup, they possibly thought they could do the convertible deal without common approval, but NYSE said otherwise.

They must be in real trouble!

I don't understand why you would want to overpay by so much.

I have been a Callaway player for about fifteen years. I hate it that they are in this situation, however I think all of the major OEM's better figure it out sooner than later that not too many of us can stand many more $500+ drivers and $900+ irons sets. I love their clubs and I can't see me playing anything else, but price alone is the reason I'm playing BB irons, and not a new set of X-Tours.
I hope nothing but the best for them, but these are tough times and they better all wake up. Makes me wonder which one will be the General Motors of the golf industry.

With a market cap of $315 million, I'm not sure how many institutional shareholders Callaway could have.

With the market cap so low, maybe Fortune Brands (parent of Titleist) could buy Callaway to get those precious Top-Flite golf ball patents that Callaway has done so much with.

CallawayOnly has hit the proverbial nail on the head!! Fortunately for me I quit buying OEM a few years ago when drivers were only $300.00.

Or maybe if Acushnet bought Callaway, they could go back to making real Pro V's! Not some DT Carry excuse for a Pro V.

well its a good ploy if only for the fact that big brother is doing the exact same thing.

Maybe this is Karma for the way they handled the Pro V1 situation with Acushnet

Yeah, Acushnet stole patents so this is karma......I don't think that is how karma works. Karma is Acushnets stealing patents, then finding out all of their "new" pro v's are still terrible.

I really do fear for Cally. I don't think they ever really planned for being anything but number one 1 in club sales. They never saw Ping going from a mid league player to undisputed king of the hill since the G2 driver broke cover. Not much of their kit is moving in the UK. Balls are dead. Srixon have jumped to number 2 after Titleist over here and Mizuno have really jumped up the iron sales charts. In my area Titleist, Ping and TM are shifting drivers but don't know anyone with an FT9 or Diablo. It is almost like every one who has ever played has had a set of Berthas or a driver and simply wants something else.

I agree! I hope it does not happen, but I think Callaway has missed the mark on a couple of recent releases, the Diablo line being the most recent. I'm gaming the fairway woods and hybrids but not with the factory headcovers. I really hate the graphics and the the whole promotion. The jury is still out on the clubs. The hybrids are not too bad but the woods....?
I as I longtime Callaway player have always given Ping a second look as I seem to never hear anything bad about them, I've just felt the need to change from what I'm use to.
Seems to me sooner or later the prices have to come down across the board from every OEM. Not sure how long they can stand the current sales numbers which don't look good for any of them right now.

I think it would be tough for Fortune Brands to pull off the acquisition due to their recent financial performance... 55% of FO's revenue is home and houseware goods which is not really doing too well in the current economic environment. Golf only accounts for about 15% of their total business and that segment is not really doing well either. The one segment that is holding up for them is.... alcohol (Wine and Spirits).

FO could just about buy Callaway outright with its cash on hand ($240 million as of the end of Q1 2009). The original comment was facetious, referring to Callaway's patent trolling suit against Acushnet over the Top-Flite ball patents that it acquired.

it would be interesting to see which companies (if any) are doing diligence on an acquisition. I know Reebok has been mentioned in the past ('05) as a possible buyer, so has Nike. Didn't Macgregor even try to buy Callaway? Puma or Under Armour would seem to make sense as golf clothing brands with no hardware business.

Reebok are now part of Adidas so I would take them out of the equation. Under Armour is not really a golf brand, it makes nasty clothes for people who sweat a lot. Puma wouldn't have a clue what to do with Cally and their own Golf range has bombed.
I really cannot see anyone wanting to pay out big money at present. Club sales are in freefall so why buy into a shrinking market.

Has anyone noticed, it's not only Cally, but even Titleist, Clevelands, the 'newest' TM are all on deep discounts? It's the entire economy, watch out cuz courses might start folding soon.

I was in GG other night, Nike Dymo at 199, so are Titleist D2/D3, Cleveland Monster HiBore are 179, it's great time to buy clubs...

Won't even bother with TM, jsut say the Ltd 400 driver is not 179, current models are 200...scary times for boutique industry like golf...Cally is one of the companies who are NYSE listed not part of some conglomerate like Titty...

Tough times for any manufacturer....maybe Obama will print another half bilion na dbail them out too.

Just raising new capital to face some debt covenants requirements, and that new prefered stocks are convertiblein the future to common stocks, that is why the dilution topic comes out.
Lets just hope all OEMs, not only Callaway, survive this economic recession, the more OEMs out here the more competition and therefore the consumer (us) benefit by the way of lower prices, better service, and better equipment. Trust me, we don´t want to end with a single monopolic OEM controlling the mayority of the golf equipment industry!!!

I think that in present times most golfers are happy to be able to play...much less throwing away money on more clubs that really only do the same thing as the old ones did. Lets face it, technology within the current rules of golf has hit a wall. No matter what the marketing departments of the oem's would like us all to believe. Rearranging gaudy badges and making a notch a hair wider in a cavity back or jacking the lofts doesn't make a better score. I found a set of mint MP-14's recently and they blow away all the last 12-15 sets of "better newer"irons I have bought in the last few years. I sold all my newer and better drivers and play one I bought about 5 years ago, simply put , it works better. The days of me buying a R7-425, then an R7- 460 , then a R7-425TP , 460Tp etc. are gone and the oem's need to adjust their business model in order to survive. Maybe some of them will go back in time and actually try to make something better instead of dreaming up a new marketing plan for a re-badged model with minor changes that mean nothing to anyone...BTW r7-425..last good driver TM made.

Now with a purchase of a Diablo driver you will get a FW wood, hybrid and $100 of Cally stock

Time for a bailout. Let Obama run Callaway.. That could help his golf game designing clubs specifically for him. A golf industry csar is definitely needed and quickly..

That may be true about the TM 425 TP. My 460 TP has been the most disappointing driver I've ever owned. I've tried 4 shafts in it and it's still on the bench! I think my R5 TP is a better club.

I think Li-Ning (http://en.wikipedia.org/wiki/Li_Ning_Company_Limited) should acquire Callaway. No need to develop golf equipments like Nike. Now, Lefty is working for Chinese government!!!