Topgolf Callaway Brands, which originated as Carlsbad-based golf equipment company Callaway, is splitting up the business less than four years after merging with Topgolf, the operator of golf entertainment venues.
The combined company announced Wednesday that it intends to separate into two independent entities — Callaway, which focuses on golf equipment and apparel — and Topgolf, which offers golf-centered entertainment and dining venues.
Though the combination seemed like a great fit several years ago, that isn’t the case anymore.
Callaway and Topgolf have very different business models, the company said this week. The businesses have different funding and operational needs, which the company believes will be more successful as separate entities.
But when Callaway Golf announced the all-stock acquisition of flashy driving-range outfit Topgolf in 2020, it thought adding entertainment venues would lure new players to its equipment and apparel portfolio.
“Callaway and Topgolf are just better together,” Callaway Chief Executive Chip Brewer said at the time. “Callaway’s leadership in the global golf equipment market and geographic diversity, combined with Topgolf’s revolutionary technology platform and access to golfers of all abilities, will allow both companies to accelerate growth and create competitive advantages.”
However, consumer spending on entertainment has dropped off across the board and as a result, sales have slowed for the brands.
Callaway recorded about $2.5 billion in revenue over the past 12 months through the second quarter, an overall drop-off in sales that was offset by revenue from new Topgolf venues. Topgolf generated approximately $1.8 billion in revenue over the past 12 months through the second quarter.
Last month, the company’s board and management team initiated a strategic review of Topgolf following disappointing stock performance and flat sales performance at its venues. This review resulted in the decision to separate the businesses, said John Lundgren, chairman of the board at Topgolf Callaway Brands in the announcement.
Since the merger closed, Topgolf Callaway Brands’ share price has gone from $29.52 to $10.76 at the close on Wednesday.
The plan is to spin off Topgolf into a separate public company, however, the company said it is still evaluating the best path to maximize shareholder value. Callaway will spin off at least 80.1 percent of its stake in Topgolf and maintain some shares in the company.
Callaway is also expected to retain all existing Topgolf Callaway Brands financial debt, while Topgolf will retain its venue financing obligations. Going forward, Topgolf said it will be funded by “a significant cash balance” and will cut back plans for new venue developments in 2025 to “the mid-single digit range.”
Topgolf currently operates more than 100 venues across the U.S. and globally. In San Diego, the company secured a 40-year lease to develop its flagship location on the San Diego Bay.
The separation of Callaway and Topgolf is expected to be completed by the second half of 2025. Still, Callaway will continue to be the exclusive golf equipment partner for Topgolf.
Brewer will remain the chief executive officer of Callaway, while Topgolf will continue to be led by its current CEO, Artie Starrs.
The two companies merged in 2021 in an all-stock deal worth about $2.6 billion, following a pandemic-fueled fervor for golf, which was seen as a safe, outdoor activity. It also marked a shift for the legacy golf brand, as it leaned into the modern, high-tech driving range business and the opportunity to reach a younger audience.
The union was further solidified in 2022, when the brand changed its name to Topgolf Callaway Brands.
On Thursday, a day after the planned separation was announced, the company’s shares opened trading at $11.39, up about 5.8 percent. The stock dipped back down to close at $10.60 on the New York Stock Exchange.
