Golfsmith International (Nasdaq:GOLF), a leading golf specialty retailer with 85 stores across the United States today announced quarterly results to little investor fanfare. While the company reported an 11% increase in revenues, operating losses grew as the company booked lease termination charges, severance payments and other one-time expenses. Yet what investors were paying attention to was not the earnings news, but the earlier announcement that Golfsmith had agreed to sell itself.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Ace or Bogey?
Earlier this week, Golfsmith announced that it had agreed to sell itself to Canadian golf retailer Golf Town for $6.10 a share in cash. The day before the deal was announced, GOLF shares traded for $4.71, so the deal gives investors an almost 30% premium over the closing share price. The company's largest shareholder has agreed to the deal alongside the Company's management and board of directors, who together own a majority of the stock. As such, the deal is not subject to further shareholder approval. However, some shareholders have accused Golfsmith of not shopping the company around in hopes of a higher bid. That said, it's likely the deal with GolfTown will go through.

A Par Deal
For $6.10 a share, Golfsmith shares are being valued at roughly 1.5 times book value for a business that has lost money over the past three years. Earlier this year, Adams Golf (Nasdaq:ADGF) agreed to sell itself to TaylorMade Adidas for $10.80 a share, or approximately 1.3 times book value. And Adams is a profitable, debt-free business that is growing its sales and profits at a rapid clip. Margins are a lot better for a golf company like Adams as opposed to a golf retailer like Golfsmith. Another leading golf equipment manufacturer, Callaway (NYSE:ELY) currently trades at around two-thirds of book value.

SEE: Digging Into Book Value

The Bottom Line
The writing on the wall seems to be that it's tough for a pure play golf business to make it as a standalone company. Callaway is attempting to make a go of it, but all the major competitors are part of a bigger group. Taylormade and now Adams are owned by Adidas, Titleist is part of Fila Korea, and Nike (NYSE:NKE) is a multi-billion sports icon with its own golf division. Retailing is a hard business and golf retailing is even harder. The combination of Golf Town and Golfsmith will create the largest specialty golf retailer in the world. The buyout offer values Golfsmith near its 52-week high of $6.35. The only time shares traded above that level was in 2007, before the U.S. recession hit. It seems unlikely that such a share price will materialize anytime soon.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fast Fashion

    Definition of "fast fashion."
  3. Hole-In-One Insurance

    A product that offers financial protection to golf tournament ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Merchandising

    Merchandising is any act of promoting goods or services for retail ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!