Topgolf Callaway announced on Wednesday its intent to split into two separate publicly traded companies, with Topgolf set to be spun off as an independent company.
The company’s board of directors is considering other separation options for Topgolf but said that a spin-off, which will be completed by the end of 2025, is the best course of action at present.
Chip Brewer, the president and CEO of Topgolf Callaway, remarked that while Topgolf had outperformed its growth and free cash expectations, the entertainment brand “has a different operating model, capital structure and investment thesis” than Callaway.
“Looking forward, we remain convinced that Topgolf is a high-quality, free cash flow generating business with a significant future value creation opportunity,” Brewer said in a press release. “Topgolf is transforming the game of golf and is expected to deliver substantial financial returns over time.”
The decision comes less than four years after an ill-fated merger of the two brands. Callaway completed its $2 billion purchase of Topgolf Entertainment Group in 2021 at a time when the coronavirus pandemic appeared to present new growth opportunities for the sport thanks to social distancing measures and a rise in golf participation. Topgolf was also viewed as an avenue to bring younger consumers into the sport with its high-tech setup and entertainment focus.
However, as with many companies that experienced meteoric rises during the early stages of the pandemic, Topgolf couldn’t sustain momentum. Consumer habits changed with less social distancing, return to office mandates and the resurgence of other entertainment options.
Shares in Topgolf Callaway (MODG) closed at $37.29 in June 2021, three months after the deal closed. However, shares have slumped ever since, closing at $10.32 on Tuesday—countering a 26% growth of the S&P index as a whole in the same period. Wednesday’s announcement sent shares upward after trading hours, at $11.05 as of press time.
Callaway, founded by the late Ely Callaway Jr. in 1982, initially went public in 1992 with a market capitalization of $250 million. More than five years later, its market cap reached $3 billion.
Topgolf launched in 2000 to reimagine the driving range, with microchip-tracked golf balls and other technological enhancements, as well as entertainment and restaurants in various locations. Prior to the merger, Callaway itself held a 14% stake in Topgolf.
