Srixon buys Cleveland Golf

[indacup]

"HUNTINGTON BEACH, Calif., Oct 30, 2007 (BUSINESS WIRE) -- Quiksilver, Inc. (ZQK) today announced that it has reached a definitive agreement to sell 100% of the stock of its Cleveland Golf Company, Inc. subsidiary to SRI Sports Limited, based in Japan.

The transaction value is $132.5 million and the transaction is expected to close during the fiscal quarter ending January 31, 2008. Net proceeds from the sale will be used to repay existing indebtedness.

Quiksilver originally acquired a portion of the interest in Cleveland in its July 2005 acquisition of the Rossignol Group. The remaining interest was acquired in a separate transaction in September 2007.

This transaction resulted from Quiksilver's initiative, first announced in June 2007, to explore strategic alternatives to reduce its exposure to the hardgoods manufacturing businesses. Robert B. McKnight, Jr., Chairman of the Board and Chief Executive Officer of Quiksilver, Inc., commented, "We are very pleased to have reached a compelling transaction with SRI Sports. While we believe that Cleveland is the best up-and-coming brand in the golf market with significant growth opportunities, it is not a strategic asset for us as we strive to maximize our core businesses and brands."

Bernard Mariette, President of Quiksilver, Inc., commented, "We believe this transaction is a key strategic action for our company that will drive immediate value and enable us to reduce both our exposure to the hardgoods space and our degree of leverage. We are pleased to turn over the leadership of Cleveland to such a capable and well-respected company and believe that this transaction is a clear win for everyone involved."

Ryochi Sawada, Chairman of the Board of SRI Sports Limited, commented, "We are very excited to add the Cleveland brand and business to our operations. Cleveland has a clear position of dominance in the important wedge market and a fast-growing presence in drivers and irons. We believe that this business will prove highly complementary to our own. We are looking forward to demonstrating Cleveland's full potential to the market and believe that the business can benefit greatly from our stewardship."

Greg Hopkins, President of Cleveland Golf Company, Inc, commented, "We are excited by the many positive aspects of this deal, including the combination of a great brand in golf with a new organization that is completely and solely devoted to the sport. Significantly, their operating model is set up to anticipate and respond to the seasonality and other specific requirements of the golf market. We believe that this singular focus will benefit the entire Cleveland organization in a number of ways. Each of the three companies involved - Cleveland Golf, Quiksilver, and our new parent SRI Sports benefit in significant ways as this transaction will positively effect the futures of all three companies."

Commenting on Quiksilver's remaining hardgoods brands, Mr. Mariette continued, "We remain fully committed to our vision to transform Rossignol to a global lifestyle brand and therefore to the continued ownership of the related hardgoods assets." Mr. McKnight added, "We are continuing to evaluate ways to reduce our exposure to risk in some of our non-core winter equipment businesses, including Dynastar, Lange, Look, Kerma and Risport which, like Cleveland Golf, were acquired in 2005 as part of the Rossignol Group."

Quiksilver, Inc. was advised by JPMorgan."

[MCDavis]

yep, read that earlier today. That's going to be an interesting combination that will hopefully get the Srixon product into more locations.

[Adam Pettman]

I bet the new wedges will be amazing.

[ManchesterGolfer]

I bet the new wedges will be amazing.

WHY??? Rodger Cleveland's been at Callaway for a long while now.

[warbirdlover]

Will the Cleveland clubs now look like Srixons or the other way around?

[ManchesterGolfer]

Will the Cleveland clubs now look like Srixons or the other way around?

Srixon make some great drivers & irons but don't really have the same pull as the big boys. I wonder if they'll rebrand? and if they do will they be Srixon or cleveland or a mixture of the two?

Maybe Srixland or Cleveon

[Sandy]

Will the Cleveland clubs now look like Srixons or the other way around?

My first thought was that this will be a perfect opportunity for them to set up a Titleist/Cobra style product range, especially given the existing profiles of the two brands they are merging - Srixon for balls and high-end gear, Cleveland for all their 'everyday' products.

[MGP]

My first thought was that this will be a perfect opportunity for them to set up a Titleist/Cobra style product range, especially given the existing profiles of the two brands they are merging - Srixon for balls and high-end gear, Cleveland for all their 'everyday' products.

I had exactly the same thought Sandy.

[limpalong]

Could/should be a great marriage! The Srixon ball line will be a great addition to the Cleveland stable. Srixon has the experience with some excellent forgings. Cleveland's forging process has been less than on par with Mizzy and Titty forgings. Now, that line has access to good casting and good forgings, rounding out the offerings.

The past few years, Cleveland has lost recognition in the wedge market. My goodness, the 691 and 588 were Roger Cleveland's namesakes and were what the company was built around. The CG line and some of the other misc offerings haven't developed the same cult following.

The Hi-Bore has rec'd some following, but Cleveland has really been struggling to regain some of the prominence of years past. Let's hope the assistance of Srixon can give us another good OEM from which to 'ho new sticks.

[RickinMA]

I agree with alot of the comments here - I think this is a win/win
Cleveland's distributors should be able to get Srixon gear out to more players and cleveland's products should hopefully improve as the new owners may be more willing to invest vs old owners who were likely trying to cut costs short term with the intention of divesting.

I wondered if Eracers post about the srixon wedges going on sale had anything to do with it but it's way too early - I'm guessing we won't see much change in the current cleveland line for a while

[VtDivot]

132 million??????

that seems awfully low.

[RickinMA]

I don't think the price is all that low (I'm a bean counter - sorry, couldn't help but look)
Cleveland Golf's financial statements for the 9 months ended 7/31/07 were filed with the SEC as part of the parent company's quarterly filing (page 26 of http://research.money.excite.com/cus...IKSILVER%20INC)
anyway, the Cleveland golf is losing money. They had a pretax loss of almost $10 million through 9 months. (and I'm guessing they sell alot of their product before July 31st so retailers can get it in our hands in time for the season)
Many times when companies are sold - deals are based on a multiple of EBITDA (earnings before interest, taxes, depreciation and amorization expenses) - this doesn't apply here because they had negative EBITDA (about ($5.7m) too - apparently the hi-bore, the CMM irons and wedges, along with the never compromise putters just didn't do that well

Anyway the parent company just bought the 36% of the cleveland golf that it didn't already own for $17.5m - which could translate into a total company value of only $48.1million - this could be off, since I have no idea how the original agreement was worded, but in any case they got $132.5m for the company that was hurting their bottom line and didn't fit with their overall image/strategy

On one hand - it looks like Srixon paid alot for it, but I really think Cleveland's customers and distribution network are worth it for Srixon

again - sorry for the accountant's view of the world, I just can't help myself

[SilverUberXeno]

I think "Cleveage" would be a perfect merger name for Cleveland and Srixon. All golfers want a good wedge named after their favorite thing to look at.

I'm excited though. I really like every Cleveland product I've ever hit. Drivers, FWs, and wedges. The srixon irons are interesting, but I'm not sure about forking over the dough to get a set.

[Youngun5]

Cleveland's Woods combined with Srixon's Irons could make for a great duo.

kind of a shame that Cleveland dumbed a bunch of their staffers before this change though.

will definitely have to keep an eye on both company's products in the next couple years.

[West Coast Duffer]

I applied for a job at Cleveland several times since they are right down the street from me. I guess they know im a hack and dont want me! hahaha