With the recent news of an 11% position in Fortune Brands (FO), Bill Ackman of Pershing Square Capital Management has created a slight buzz in the golf industry. As a result of rumors regarding the possible split of Fortune Brands into three business units (distilled spirits, golf, and home & security products), there is speculation about the possible Acushnet unit. The maker of Titleist and FootJoy products is a leader in the golf industry, and by most standards the most successful golf division in the world. The question is: Who would be interested in Acushnet?
From the other three big manufacturers, there isn’t really much of an opportunity/justification for an Acushnet acquisition. Let’s take a look at why for each company:
Callaway (NYSE:ELY) – Unfortunately for Callaway, Fortune Brands would most likely want to be paid (surprising, I know) -- and handsomely -- for the rights to two of the premier brand names in golf. Callaway has struggled in the past few years to even finance its own operations, and is in no position to take on more liabilities.
TaylorMade, owned by Adidas (ADDYY.PK) – Why? TaylorMade has done a fantastic job building its brand in the recent past, especially with the continued success of the R series (the #1 driver in golf). There is really no reason why Adidas should spend money purchasing Acushnet if it can invest that same capital back into TaylorMade and achieve returns comparable to what it's realized since acquiring the brand in 1997.
Nike (NYSE:NKE) – While I still don’t see it happening, this is the most reasonable of the three. While Nike has success in apparel, it has struggled with its equipment and may not be too excited by the opportunity to throw a couple hundred million at the issue. This is a category where Titleist has succeeded, and could drive growth to revenues/income. How Nike would play this out -- hold on to the Nike Golf brand? Divest to private equity? -- is anybody’s guess.
As noted above, this is all speculation for the time being. I will keep readers informed of any new developments that come my way.
Disclosure: Long ELY.