On The Block: Coastcast Takes A Swing at a Sale

Golf club and specialty products manufacturer Coastcast Corp., a company at the top of its game in the booming golf industry, should sink a buyer within the next eight weeks for a solid premium, sources say. “They occupy a very attractive niche. They totally dominate the industry,” said Mario Cibelli, an analyst at Robotti & Co. He added that because Coastcast announced that it had hired Bear, Stearns & Co. on May 15, “Now they’re gonna’ get in front of everybody.” Coastcast, which manufactures golf club heads for leading club marketing players, decided to look at strategic alternatives following approaches from two financial buyers last November and December, whose names could not be determined by press time. Cibelli said that he was not surprised at the interest shown, as the company has a moderate valuation, the trust of the industry, and is expected to continue to grow. Moreover, the offers would not be spurned by CEO Hans Buehler, as a sale would fit with his long-term goals for the company, he said. Buehler did not return calls. The company could go between $25 and $28 a share, or $192 million to $215 million, Cibelli said. Coastcast’s market price has been climbing steadily over the last year, and a sale in the mid-20s range would represent only a multiple of six times cash flow, which is modest for the manufacturing industry, he said. The stock rose 3.6% on the announcement to $19.68, and at press time (end of May) closed at $18.25. A source who wished not to be named said that the sale could become interesting if strategic buyers enter the picture. If a customer like Callaway Golf Co. were to buy, fellow Coastcast customers like Cobra Golf Inc. and Titleist & Footjoy Worldwide would have to look elsewhere for a manufacturer, which at the moment isn’t there. This result would be a disruption of business, he said. Other strategic buyers could be large golf companies, golf parts manufacturers, or producers of gun or auto parts, the source speculated. Cibelli noted that an additional factor that points to good prospects of a robust premium is the company’s solid first quarter returns: earnings of $3 million on revenue of $37 million, up from year-prior earnings of $2.3 million on $27 million. Coastcast also has $50 million in cash-on-hand and near debtless balance sheets. Bill Dobbs, a 4.8% shareholder and managing member at Formula Fund Management, said that he expected an offer of $25 to $30 per share, adding, “There are people who’d write a check for $25 per share without even visiting [the company]”. Dobbs wrote a letter to the company in January expressing his dismay at not having been informed about the interested parties. There were two financial buyers, the Southern California arm of a New York based investment bank and a wealthy Northern California family which owns a large company with $10 billion under management and $2 billion in LBO funding available, he said. He asked Coastcast to establish a board committee to evaluate such offers. He said a potential buyer could be Alcoa Inc., which recently purchased casting company Cordant Technologies Inc. for a 92% premium. Apply that premium to Coastcast, and it would be $36 per share, or $277 million, he said. As further evidence of a top-premium possibility, Dobbs cited Cornerstone Financial Group’s 1998 acquisition of True Temper Sports Inc. for $205 million when True Temper was making $20 million in EBITDA. For Coastcast, that would mean $32 per share, or $246 million. Coastcast began contacting buyers in early May and should announce a sale by mid-July, he said. Bear Stearns, Coastcast’s adviser, was unavailable for comment.