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Published September 20, 2007 at 4:00 PM
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New York-based Topps fielded rival offers for half the year: a $385 million, $9.75 per share buyout by Beverly Hills, Calif.-based Tornante Co. LLC -- ex-Disney CEO Michael Eisner's private equity outfit -- and Chicago PE firm Madison Dearborn Partners LLC, as well as a $425 million, $10.75 per share spoiler bid from rival baseball card maker Upper Deck Co. LLC. Topps agreed to the Tornante-Madison Dearborn take-private in March. Despite persistent shareholder fire, Upper Deck's higher offer, which came to light May 24, and a subsequent law suit, the baseball card maker continued to stand behind it.
Among other vocal critics, Topps' second-largest shareholder Crescendo Partners LLC, a New York hedge fund, has said Topps shares, which largely trade below the buyout price, could be worth $16 to $18 within two years with different management at the company. The firm said in the past it planned to mount a proxy fight to gain control of Topps' board of directors if the deal was rejected. Crescendo is just one player in what has been a particularly contentious takeover battle.
THE RETREAT
Upper Deck pulled its bid late Aug. 21, accusing the target of "deliberately discrediting" its offer. Topps fired back the next day, saying it intended to hold the rival accountable for damages, hinting the ongoing colorful exchange of words between the two companies wasn't over. The pull-out left the Tornante-Madison Dearborn team as the last bidder standing, in a way, alongside an option shareholders could opt for, but only if they reject the buyout: an alternative proposal by Topps investor and long-time management critic, New York hedge fund Crescendo Partners LP, to repurchase $110 million in stock, or 28% of the company's equity, at between $10 and $10.50 per share.
Some late-game moves in the saga:
- A vote, which was set for Aug. 30, was rescheduled for Sept. 19 and then stalled, from 11 a.m. to 3 p.m, as the company first said it needed more time to convince shareholders and with the delay, said "substantially more" votes had been cast in favor of the buyout, but that it still didn't have enough to pass the 50% mark.
- Ahead of the vote, Topps' 8.5% stakeholder Mario Gabelli said his Gamco Investors Inc. would support the buyout and a source told The Deal's David Shabelman the influence of Michael Eisner may have been instrumental in getting the deal through.
- Upper Deck took its $10.75 per share offer, which betters the Tornante-Madison Dearborn offer by $1 per share, straight to Topps' shareholders on June 25.
- The news came a little more than a week after Topps postponed its June 28 meeting to vote on the Tornante offer after a Delaware Court of Chancery decision June 14 enjoining Topps from proceeding with the vote without making additional disclosures in its proxy materials on the merger agreement.
- On July 9, Topps directors rejected the Upper Deck bid, but the would-be acquirer still hoped antitrust clearance would help its cause.
- On July 23, Upper Deck said it would extend its offer for outstanding Topps shares until Aug. 10, a week after having to withdrawal and refile its regulatory documents.
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On July 31, Topps postponed a shareholder vote on its Tornante-Madison Dearborn buyout to Aug. 30 (later delayed). The company also said it is waiting to see Upper Deck's latest FTC filing to learn whether it has gained antitrust approval.
- In a letter sent to Upper Deck's counsel Aug. 8, Topps accused its rival of insincerity in its offer to buy the company, as the would-be buyer, Topps contended, has tried to renegotiate its original proposal to secure better financing. Topps questioned whether Upper Deck was just trying to interfere with the Tornante-Madison Dearborn offer and "otherwise harm Topps' business."
- Upper Deck replied Aug. 9, accusing the target of failing to negotiate in good faith since at least February.
- Upper Deck pulled out Aug. 21, and Crescendo sent a letter to Topps shareholders Aug. 22 urging against the PE buyout. Institutional Shareholder Service Inc. did likewise days earlier, Aug. 20.
- Topps delayed the investor vote Aug. 27 unsure of gaining shareholder approval.
NOT SO FAST
From the beginning, it looked likely the Tornante buyout, which carried an 11% premium, but was at a price below the stock's share price three weeks earlier, would come under fire. The battle waged for months.
BY THE NUMBERS
Continually eroding financial performance, excessive executive compensation, improper use of cash, poor stock performance and lack of accountability, all are reasons dissident shareholders have given for waging their multiple proxy fights with Topps. In July 2006, they gained the support of ISS, which wanted shareholders to elect a dissident slate of board directors. It seemed at the time that maybe someone could figure out a strategy for a dinosaur of a company that, it appears, nobody has quite known what to do with.
Investors from Pembridge Capital and Crescendo Partners, collectively know as the "Topps Full Value Committee" teamed up May 17, 2006, filing a proxy statement to add three new members to the company's board.
Some figures the activists cited include:
"Income from operations fell significantly from $36.6 million in fiscal year 2002 to a loss of $2.3 million in fiscal year 2006."
- Indeed, after baseball cards became so last-century several years ago, the company enjoyed instead a revenue spurt from the Pokemon craze in 2000 and 2001. A short-lived phenomenon, revenue then fell off, dropping from $439 million in fiscal 2000 to $296 million in fiscal 2005. Last summer, the company said it had spent about $900,000 on new marketing and product development personnel.
Arthur T. Shorin, the statement also said, the company's chairman and chief executive, took an average salary of approximately $980,000 over the past three years. Seeming to suggest it was unmerited, the committee argued it was on par with that of executive at the helm of such companies as Kraft Foods Inc. and Hershey Co., doing considerably better than Topps.
A ROCKY ROAD
Since the baseball card faded out of fashion, the New York company has had a less-than-stellar time.
- Topps hired Lehman Brothers Inc. in February 2005 to explore strategic options, and it officially put its candy business up for sale last May. In the fiscal year preceding, the unit accounted for nearly half the company's $293.8 million in revenue.
- Also last May, Pembridge Capital's Timothy Brog, a disgruntled shareholder, officially took on Topps with a proxy fight.
- Then, in September, Topps took its gum unit, which at its heart includes the Bazooka Joe brand, off the block after failing to hear a sweet enough bid. Alternatively, the company plans to trim management and save $2.5 million. At the time, bidders were thought to include some of the kings of confection: Hershey of Hershey, Pa., Chicago's Wm. Wrigey Jr. Co. and Tootsie Roll Industries Inc., as well as Huhtamaki Oyj of Finland.
- At the time, shareholders and analysts objected to the decision, citing stagnant growth, falling revenue and increased expenses.
- Topps' sinking ship has long been thought to be its cards and entertainment division, and a string of acquisitions that didn't pay off have taken their toll. Last year, its WizKids business, a game developer, was valued at 1 times sales, or $22 million -- 23% below the $28.4 million Topps paid for it in July 2003. Meanwhile, ThePit.com, an online trading site for cards that Topps acquired in August 2001 for $5.7 million, hasn't performed the way the company had hoped it would.
- In April 2006, speculation again rose that Topps, or a division, could go on the block again.
--Carolyn Murphy
| Dealwatch executive summary |
The Date |
The Action |
| 9.19.07 |
Topps shareholders squeeze Tornante buyout through. |
| 8.22.07 |
Tornante buyout goes to Topps shareholders. |
| 8.21.07 |
Upper Deck pulls out. |
| 8.20.07 |
ISS urges shareholders to vote down Tornante buyout. |
| 8.08.07 |
Topps accuses Upper Deck of insincerity; Upper Deck replies the next day. |
| 8.06.07 |
Upper Deck says it wins antitrust approval. |
| 7.09.07 |
Topps directors reject Upper Deck, for now. |
| 6.25.07 |
Upper Deck takes offer to Topps shareholders. |
| 6.15.07 |
Topps favors Madison Deaborn-Tornante offer. |
| 6.05.07 |
Upper Deck and Northwood sue Topps. |
| 6.01.07 |
Topps responds to latest Crescendo criticism. |
| 5.30.07 |
If shareholders say no to Eisner and team; Crescendo wants a proxy contest. |
| 5.24.07 |
Topps confirms counteroffer. |
| 3.06.07 |
Topps agrees to $385M buyout. A week later, shareholders blast a company decision around the go-shop process. |
| 7.18.06 |
ISS calls for Topps management to elect a dissident slate of board directors. |
| 5.18.06 |
Two Topps shareholders file a proxy statement with the U.S. Securities and Exchange Commission to appoint three directors to the ailing company's board. |
| 5.12.06 |
Topps challenges proposals made by activist hedge fund Pembridge Capital to change its bylaws saying they're not within the power of shareholders to adopt. |
| 4.28.06 |
Topps may go back on the auction block after Pembridge Capital again stages a proxy fight and pushes for a sale of the embattled baseball card maker. |
| 9.16.05 |
The company's gum unit goes off the block after seven months and no bids sweet enough. Instead of a sale, the company plans to trim management and save $2.5 million. |
| 7.13.05 |
Plagued by many of the same problems Topps faces, rival card maker Fleer/SkyBox International LP sets out to divest its assets and avoid bankruptcy. |
| 6.25.05 |
Topps faces fundamental questions and challenges as it weighs its strategic options weeks after assuaging Pembridge with a promise to pay its $50,000 in proxy fees and refrain from adopting a poison pill. |
| 5.2005 |
Topps officially announces mulling a sale for its confectioner unit. |
| 5.16.05 |
Activist shareholders officially announce launching a proxy fight against Topps. |
| 11.24.04 |
After the Pokemon craze dies down, and a shift in media and entertainment gains steam, a wealth of M&A activity is expected. |
| 8.2001 |
Topps takes ThePit.com for $5.6 million. |
Source: The Deal |
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The battle for trading card and candy maker Topps Co. started and stopped all
summer long until
one side finally gave up Aug. 21 and investors took the other offer Sept. 19. But whether it's really over, a particularly vocal critic says, is still in question.
