Why Topgolf Callaway Stock Was a Solid Hit in March

Rumors are swirling about a potential deal. Topgolf Callaway Brand (MODG 1.23%), investors dream of profits above the standard. Shares of the golf and entertainment company rose 13.6% in March as the market digested talks of overseas purchases, according to data provided by S&P Global Market Intelligence.

Can Topgolf take a merger mulligan?

Topgolf Callaway was formed through a merger in 2021, which seemed logical at the time but didn’t make much of a splash with investors. Callaway is one of the most popular names in golf, with a diverse product line of clubs, balls, and apparel. Topgolf, meanwhile, is a chain of golf-related entertainment centers targeting consumers who enjoy swinging a club but don’t want to play all 18 holes.

But the company has struggled to stay fair, and the stock has lost about half its value since 2021.

Currently, the company’s largest shareholders are reportedly considering winding down their arrangements. According to Korea’s Chosun Ilbo, Topgolf’s major shareholders are as follows. Blackrock AdvisorProvidence Equity Partners and Thomas Dundon, which together own about a third of the company’s stock, have put the Callaway business up for sale.

According to the report, shareholders are considering spinning off Topgolf into an independent entertainment company and selling its golf equipment division. According to the report, potential bidders included Korean investors.

Is Topgolf Callaway a buyout in merger talks?

Talks of a deal have understandably created some excitement among investors, but caution is needed here. First off, this rumor doesn’t appear to have spread across the Pacific and has yet to be confirmed by any other media outlets. And Topgolf Callaway issued a statement dismissing the report, saying “there have been no such discussions” about a spinoff or sale of the company.

Left alone, Topgolf Callaway executives have a difficult task ahead. Topgolf locations are popular, but so far they haven’t translated into big profits. Golf appears to be enjoying a bit of a resurgence in the United States and remains popular in Asia and other regions. However, in addition to competition between entertainment venues, there is also fierce competition between equipment and clothing manufacturers.

This is why there are rumors of a breakup, as the expected synergy between the clothing and entertainment sectors has not yet justified the merger. Even if majority shareholders can’t force a split, they can at least try to consider the option.

Investors should evaluate Topgolf Callaway on its own merits, not just deal talks. A selloff could still occur, but if not, this stock is unlikely to stay elevated for long.