Topps: This Buyout Is Robbery

Mar.13.07 | About: Topps Co. (TOPP)
Topps (TOPP) was founded in 1938 as Topps Chewing Gum, and in its early years produced a popular penny "Topps Gum" from a factory in Brooklyn, N.Y.

After World War II, Topps developed Bazooka Bubble Gum, and in 1950, added trading cards to its product line. Baseball cards appeared in 1951 and quickly became a vital part of pop culture, a tradition that continues to this day, and includes football (both American and European) and basketball, in addition to entertainment cards, stickers and albums. In July 2003, Topps acquired WizKids, LLC, a designer and marketer of collectible strategy games. Topps maintains offices in Canada, the United Kingdom, Ireland, Italy, and Argentina, in addition to the U.S.

Topps also manufactures the popular lollipop brands marketed as Ring Pops, Push Pops, Baby Bottle Pops and other novelty candy and gum products. Now headquartered in New York City, the company has worldwide distribution, annual net sales for Fiscal 2006 of $293,838,000, and employs over 487 people worldwide.

Recently, Micheal Eisner's group offered $385 million for the company. In what might be the best and latest example of boardroom incompetence, Topps agreed to the buyout. This should be criminal. A cursory look reveals what I am talking about:

Cash on hand $81 million
Shares Outstanding 39 million
Debt - ZERO
Cash per Share $2.07
Offer Price $9.75
Closing Price Day Before Offer $8.91

Do you see where this is going? We have to subtract the cash on hand from the offer price because Eisner's group will receive that cash (and have no debt to pay off) once the deal closes. We then take the offer price of $9.75 minus cash on hand of $2.07 and we have an answer of $7.68.

What does that mean? If you are a shareholder your management just agreed to sell the company 13.8% BELOW the current market value! If you are one of those "lucky" shareholders you now know how Ned Beatty felt in "Deliverance."

Here what it should look like, $8.91 closing price plus $2.07 in cash = $10.98 starting price for bids.

Fortunately, there is a white knight: Topps director Arnaud Ajdler and the investment firm Crescendo Partners II have launched a campaign to kill the deal. Crescendo owns about 6.6 percent of the company's shares, according to filings with the Securities and Exchange Commission. Ajdler is also a managing partner of Crescendo. In his filing he says, "Since the Board of Directors has decided to pursue this transaction over the significant concerns which I have continually and repeatedly voiced to the Board, I intend to actively solicit votes and campaign against the proposed transaction."

He is hoping he succeeds.........

TOPP 1-yr chart