Topps Acquired by Eisner-led Group (TOPP, CLCT)

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One merger that seems very peculiar this morning is that of Topps (TOPP-NASDAQ).  This is the baseball card and sports and non-sports card and memorabilia producer that almost all males in the US have known at some point in their lives. 

Michael Eisner’s Tornante Co. LLC and another private equity firm Madison Dearborn Partners LLC have agreed to pay $9.75 per share to acquire the company.  Topps’ board has approved the transaction and the groups are looking for a third quarter closing date. Other brands owned by Topps other than a stranglehold on sports cards are Bazooka bubble gum, and candy brands Ring Pop and Push Pop (it previously tried to sell its confectionary operations but had no buyers at acceptable prices).

One issue that the company has is just how it can add value back into collecting.  Most of the mass produced cards made are now worth more when they are issued than they are 10-years later.  That was not the case in the past but now every kid and collector knows that the cards have to be kept in pristine condition and these aren’t thrown out as kids’ garbage when the kids go away to college like in the generations before. 

The shares are up 11% at $9.95 pre-market, above the $9.75 offer, because the shares have traded higher than these levels in the recent past.  Rumors have been out there before on TOPP being a buyout candidate as well, so there could be faint hopes that others may try to come to the table.  The 52-week trading range is $7.50 to $10.00 and this one has been up to $11.00 a couple of times over the last few years.  Unfortunately the stock has never been able to command its old $15.00 to $20.00 range back in the earlier 1990s. 

This is a fairly small deal with a current $385 million market cap, and there shouldn’t be any regulatory issues.  The company trades roughly at 30-times earnings.  Its entire liabilities are only $74.9 million, so even if you account for $80 million of its $278 million total assets being “goodwill, intangibles, and other” it is a very doable deal.  This goodwill and intangibles actually has quite a bit of value to it because of the library and copyright.

Topps is the only public company of its sort, but there is one more company that could be considered a related play: Collectors Universe (CLCT-NASDAQ).  Collectors Universe actually authenticates and professionally grades sports cards, non-sports cards, historical items, memorabilia, autographs, publications, and even diamonds.  Its market cap is merely $113 million and both companies have been discussed before as potential acquisition candidates, so who knows. 

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

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