Topgolf Callaway Brands Stock Swings Higher On Intent To Split Into Two Separate Companies

Topgolf Callaway Brands Corp MODG shares are rising in extended trading Wednesday after the company announced plans to split into two separate companies.

What To Know: Topgolf Callaway Brands’ board announced it will pursue the separation of its Callaway and Topgolf businesses. The company plans to effect the separation through a spin-off of the Topgolf business to shareholders.

“Over the last decade plus, we have transformed Callaway into the #1 brand in golf equipment, while building a successful and complementary apparel and accessory business.  We believe this business, on a stand-alone basis, will be well understood and valued by the market,” said Chip Brewer, president and CEO of Topgolf Callaway Brands.

“Since our merger with Topgolf, we have made considerable investments in the Topgolf business that have dramatically expanded its scale, digital capabilities and venue profitability. These investments, combined with the hard work of the Topgolf team, have allowed us to outperform our original growth and free cash flow expectations. Looking forward, we remain convinced that Topgolf is a high-quality, free cash flow generating business with a significant future value creation opportunity.”

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If the company receives final approval for the spin-off, Callaway will consist of the company’s golf equipment, Toptracer and active lifestyle businesses, which generated $2.5 billion in revenue over the past 12 months. Topgolf will consist of the company’s existing Topgolf business, which brought in approximately $1.8 billion in revenue over the past 12 months.

The transaction is intended to be tax-free to both the company and its shareholders. Topgolf Callaway Brands intends to spin off at least 80.1% of Topgolf to obtain the desired tax-free treatment and will also consider retaining a limited ownership in Topgolf for a period of time. 

Topgolf Callaway Brands said it expects the two businesses to be better served operating independently from each other. Following the planned spin-off, the company expects its businesses to benefit from enhanced strategic focus, optimized capital allocation and simplified operating structures.

“The creation of two independent companies, each with a distinct focus and proven business model, is intended to drive continued momentum in both businesses and deliver value to all our shareholders,” said John Lundgren, chairman of the board of Topgolf Callaway Brands.

MODG Price Action: Topgolf Callaway Brands shares were up 0.46% after hours at $10.76 at the time of publication, according to Benzinga Pro.

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