TaylorMade-Adidas Golf (TMAG) has signed a deal to buy all the outstanding shares of Ashworth for $1.90 per share in cash, representing a total value of $72.8 million including the assumption of $46.3 million worth of debt. TMAG will carry out the transaction under the condition that a majority of the outstanding shares are tendered.
The move should make Taylor Made-Adidas Golf the leading golf apparel company in the world. Adidas golf apparel and Ashworth are complementary as the German brand is more performance-oriented, while Ashworth is stronger in cotton-based products. The head offices of TMAG and Ashworth are both located in Carlsbad, California, offering the possibility of strong synergies in back office. Besides, Ashworth, which generates only 18.5 percent of its turnover outside the USA, could benefit greatly from TMAG's big international sales apparatus and from Adidas' strong sourcing capabilities.
We could not determine at press time whether Ashworth's golf apparel license with Callaway Golf will continue before or after it is set to expire in 2010. A spokesman for the Adidas group said his company would sit down with Callaway and decide what to do about it. A forward-looking statement attached to Adidas’ announcement indicated a risk related to the successful resolution of a current dispute with Callaway that dates back to last January, when Callaway issued a notice of default to Ashworth on their license agreement. Callaway demanded binding arbitration after a meeting last April failed to to bring about an understanding between the two parties.
Ashworth’s board of directors has approved the sale, and members of Knightspoint Partners who own more than 16 percent of Ashworth’s outstanding shares have agreed to tender theirs. Taylor Made-Adidas Golf is paying for the purchase with cash on hand or its existing credit lines. It is expected to be finalized in the fourth quarter of 2008.
Ashworth enlisted financial advisers to explore its options after a bad third quarter. For the period ended July 31, it reported a loss of $9.6 million, down from a loss of $5.7 million in the same period in 2007. Total consolidated revenues were down by 8.7 percent to $45.2 million for the quarter. The consolidated gross margin decreased by 3.3 percentage points to 34.9 percent, largely because of increased discounting, as well as higher costs of materials and transportation, and higher inventories.
While Adidas Golf apparel has been doing well in the American market, it has been declining in Europe for several years, and only started to hit its targets again this year. The group has been focusing more sharply on its golf equipment and the European business suffered from the fact that the Adidas Golf ranges are designed in California, with styles and sizing that are often regarded as uninspiring, if not unsuitable, for the European market. For the same reason, Adidas Golf apparel is particularly weak in the European female market.
It was therefore decided a few months ago to beef up the business through acquisitions, as a means to widen Adidas Golf’s distribution and to reach a more profitable scale. Adidas has been urged to make acquisitions in the last months, as it has been sitting on a bulging war chest.
Among the latest initiatives to achieve more organic growth with Adidas Golf apparel in Europe is the launch of a luxury range for Spring 2010, starting with a men’s range. Priced about 20 to 25 percent higher than the brand’s current average, the luxury golf range would be sold chiefly on the high street and at resort pro shops.
Officials of Ashworth declined to comment on the pending deal, but they probably stand to benefit from it financially. A few weeks ago, Ashworth adopted a management control plan that will pay up to an aggregate $500,000 two months after any change in control of the company.
