Topps Co. Inc. (TOPP)

All Comments on TOPP

  • commenter
    SeekingAlpha
    Editors
    Apr 06 05:17 AM
    My Website
    General Discussion on TOPP
    Is this a buy or a sell? Reply
  • commenter
    Geoff Gannon
    Mar 21 05:09 AM
    My Website
    Topps Shareholders Should Reject Eisner's Offer [view article]
    Amit,

    Thanks for the excellent explanation regarding your views on valuation. I am certainly looking at it from the perspective that the business will improve. It has already improved considerably if you look at the last quarter or so. The entertainment business has been a very poor performer. You are also getting Bazooka – which at this point is really a brand name without a product behind it. The current management more or less concedes this point.

    I think there is a lot of potential in Topps. I don't own shares and it would not be the first company I would think of if I were hunting for LBO candidates. The good points are the high unlikelihood of consuming meaningful amounts of cash under even the worst circumstances, the brand names, the extremely low cap-ex requirements (because it’s an intangibles business), and the market structure of the card business – especially now that Topps has managed to push some of its competitors out through lobbying the leagues to alter the market structure.

    But, on the other hand, the company has underperformed for years. The card business has been declining for years if you look only at sports cards and exclude the Pokemon craze that made so much money for Topps (but ended as quickly as it began).

    I don't fault Eisner or Madison Dearborn here. The offer, while only providing a small premium over the recent share price, is not by any means outrageously cheap relative to past performance. A buyer shouldn't be faulted for trying to get a good deal.

    I only wish to educate shareholders on the deal and to draw some attention to it. Obviously, the buyers are well aware of the cash on the balance sheet. The cash really provided the opportunity to make an offer at these levels. I'm less certain that shareholders have fully considered the possibilities offered by having that much cash on the balance sheet (for a company that certainly doesn't need it).

    While sales are not the traditional method for evaluating these buyouts, I do think it is the best measure in this case, because that is the only way you can assess the potential for the business if there is an improvement – in this case, an improvement that is brought about by two factors: the removal of a largely unsuccessful and clearly complacent manager, and the benefits of the "turnaround" plan already implemented.

    Regarding the last point, I recommend the company's most recent conference call (available at the corporate website). It should lead to meaningful improvements. I hope that shareholders fully understand the potential there as well as the potential uses of the cash on the balance sheet. Part of the underperformance for shareholders has been due to poor capital allocation decisions by the company.

    However, I agree with you as far as comparing the offer to the company's past performance. I am not advocating playing hardball with the buyers as much as I am advocating taking a serious look at alternatives such as removing Mr. Shorin, using the cash to buyback shares and/or pay out a large special dividend, and taking on an acceptable amount of debt.

    As for Eisner and Madison Dearborn, I an LBO really does put constraints on them that would make a deal at a higher price difficult. That isn't to say that a deal at a higher price wouldn't be "fair" or that the company isn't worth a higher price, it's merely to say that a highly leveraged offer can not value the company at much above its demonstrated cash generating ability (of past years), because it has to be financed with that cash. In many ways, an active management team running the company while it remained public would be in a better position to run the company in the ideal manner in the years ahead, because it could (and should) make use of an appropriate amount of debt – but, it would have no need to take on a potentially troublesome burden.

    And for the record, while I'm quite happy with Seeking Alpha and the care they've taken with my posts, it's worth noting that they choose the titles for the posts as they appear on this site – I do not. The post they entitled "Is Michael Eisner Stealing Topps" was simply "Topps to be Acquired by Eisner and Others" when it appeared on my blog. Likewise, this post entitled "Topps Shareholders Should Reject Eisner's Offer" was simply titled "Against the Topps Deal" on my blog. So, the posts as they appear on Seeking Alpha do give a bit more of a sense that I'm writing with Eisner in mind, when really I'm just trying to encourage shareholders to take a serious look at the company they own and to agitate for change if they feel such change is necessary.

    Thanks again for the great response. It's by far the best comment I've seen in response to one of my posts on Seeking Alpha.     Reply
  • commenter
    Jeffrey Todd
    Mar 15 08:04 PM
    My Website
    Topps Shareholders Should Reject Eisner's Offer [view article]
    WOW nice explanation. I have a blog that sums up my feelings in one paragraph.

    Eisner, aka goofy head, has failed for the moment to buy Topps, the sport card company. His bid has shareholders seeing red. How dare him? This company has 80+ million in cash and Eisner has seen the bottom line. I think Eisner is looking for a quick buck. If he buys the company, what is he going to do to raise sales, put Cinderella in the batting cage? I agree with shareholders on this one. This guy has a failing TV hosted program and little insight into the real world of sales. Let Topps remain as is and get Eisner a real job! Corporate Raiding is so 1990ish.     Reply
  • commenter
    Amit Chokshi
    Mar 15 06:04 PM
    My Website
    Topps Shareholders Should Reject Eisner's Offer [view article]
    The valuation some people say is fair is $11 per share, it's based on a break up where some people think the confectionary business goes for 2.0x sales and the cards/entertainment go for 0.4x sales. The confectionary business has a higher contribution margin (~30%) vs the entertainment business (~20%). I don't see that valuation happening just because the market didn't take to the confectionary business. Topps tried selling it in 2005 for 7 months and nobody bought it so I don't see that break up value as realistic. Eisner and MDP may be able to sell it but I'd be surprised if they got 2.0x sales for that business. If you assume Eisner/MDP just want to buy the entire business without plans to divest then this really looks like an overpriced deal.

    Price to sales is not used primarily to value LBOs unless you're looking at distressed retailers, and even then it's just a second check against the main metric which is EV/EBITDA. The cash you're talking about is already factored into the enterprise value and the Eisner/Madison Dearborn bid. I don't own shares and think your write ups on the background are great but Madison Dearborn and Eisner's group can't pay a stupid price because they'd have to put in more equity and dampen their returns. I just did a quick look at the company's historical figures and it looks like margins have been steadily declining. Looking at their latest 10-Q, I just annualized their operating income + D&A for an annualized figure of $19MM in EBITDA. They have minimal annual capex, prob around $3MM or so.

    So based on that EBITDA figure, which is basically how every LBO is valued, the current $300MM enterprise value of TOPP values the deal at 15.7x EV/EBITDA. Looking at their latest 10-K, these guys seem to be treading water at around $295MM in annual sales every year, gross profit margins seem erratic, and SG&A costs have been rising. So being more than fair, these guys did poorly in 2006 but just going to 2005 and 2004, they've been at best a $20MM EBITDA business with CapEx of about $3MM.

    So even assuming Eisner and MDP have some great plan to enhance margins, assume EBITDA is $25MM or so, they're paying 12.0x EV/EBITDA for TOPP on a forward basis. And in today's leveraged loan and high yield markets, you can get 5-6.0x leverage for strong cash flow generating businesses (which I don't consider with TOPP but I'll say the bankers do this deal at that financing range) so assuming they get 6.0x EBITDA for debt that's $150MM in debt they raise and $150MM in equity Eisner/MDP have to put in. A 50/50 split in LBOs is pretty unheard of unless there are some serious growth prospects, even then going less than 65% debt to capital is pushing it in terms of reducing your overall returns. So $150MM in debt, assume these guys have an average interest cost of 9% which is probably being generous, and that's $13.5MM in interest a year.

    So assuming Eisner/MDP have some operational wizard or insight on some secular trend that will drive sales to leverage that overheard or they have some operational wizard that can bring EBITDA up to say $25MM, that's a shaky deal out of the box. $25-$3mm capex-$13.5MM = $8.5mm left over, that's some pretty low interest coverage. On the surface this looks like a fair if not overpriced deal to me, I'd have to imagine Eisner/MDP have some thing already lined up to significantly improve this business because if they don't I don't see how they really generate an impressive IRR.     Reply
  • commenter
    George
    Hickey
    Mar 09 10:31 PM
    My Website
    Crescendo Partners Not Satisfied With Topps Buyout Offer [view article]
    This is heading to court: ghex.wordpress.com/200.../ Reply
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