Topps’ sale to private interests has some shareholders hoping for a better deal before the contracts are signed. The company’s newest board members are ready to fight it. But one collector who works in the buyout industry says it makes sense.
Seven of the ten members of Topps’ board of directors voted in favor of the sale of the company to Tornante Co. and private equity firm Madison Dearborn Partners (MDP) for $385 million. The three who voted against the deal are the newest board members, all of whom believe the company should have sought a better offer.
Timothy Brog, CEO of Pembridge Capital, who won a seat after a public proxy battle over the company’s performance told SmartMoney.com he "thought the process was flawed. I think they should have auctioned off the company and we would have found the fair-market value of Topps."
Some Wall Street analysts feel the company may indeed receive better offers during the upcoming time period that allows Topps to "go fishing" for a better price than the $9.75 per share they are scheduled to be paid.
However, one buyout industry insider with knowledge of the inner workings of such deals, and a collector himself, told SportsCollectorsDaily via e-mail that he expects the deal will go through and that Topps is on better footing than many believe.
"I think the industry has stablized significantly, for better or worse, and the
relationships Topps brings with MLB and ther other licensing entities is very solid," he wrote.
"MDP has a great reputation, as a conservative leveraged buyout shop and does not invest in bad deals. I am sure they met with MLB, the MLBPA and others before agreeing to this. The valuation does not seem like a big gain for Topps shareholders, but with the proxy battles they had fought over the past few years, it is fair."
Topps’ third quarter earnings were up 99 cents per share from the same period a year ago with the sales in the sports card division up 11%. Morgan Joseph analyst Jeffrey Blaeser maintained his ‘buy’ rating on Topps with a target price of $11 per share. Wall Street seemed excited, with shares up 90 cents at the market’s close to $9.81.
So what’s next for Topps? The sale must get regulatory approval and be approved by a majority of the outstanding shares. It will mean President Arthur Shorin will step aside within 60 days. The insider also expects fresh perspective will help the long term future of Topps.
"Typically, in a deal such as this, management retains ownership on the order of 10-15%, maybe more, as well as having much greater incentives with stock options and warrants to make the deal succeed. It means the company will be run for the right reasons, and will be around for a long time," he wrote.
"A leveraged buyout is not much different than a house bought with a
mortgage. Investor groups buy a company using a combination of equity (cash) and debt (loans). The more you can "lever" the equity, i.e. borrow more relative to the cash paid, the better return on your equity or cash when you exit, or sell your
interest in the company…assuming you sell it for more than you bought it for."
"It might be a little confusing over the next 18 months, but Topps not go away, even though a deal like this purges some management, and does usually mean some change."
Long-time hobby writer Bob Brill offers his take here.
Beckett, which was itself part of a similar buyout not long ago, has it’s own news story on the sale.