Topps to Be Bought by Eisner Group for $385.4 Million
By Chris Dolmetsch

March 6, 2007 (Bloomberg) -- Topps Co., the maker of baseball trading cards and Bazooka bubble gum, agreed to be acquired for $385.4 million by private-equity investors including former Walt Disney Co. Chief Executive Officer Michael Eisner.

Eisner's Tornante Co. and Madison Dearborn Partners LLC will pay $9.75 a share in cash, New York-based Topps said today in a statement.

Eisner may be in for a battle with shareholders over the price, which is 9.4 percent above yesterday's close. Three directors, also among the largest shareholders, opposed the transaction, because it would hand over control of the 69-year- old company just as it begins to generate profit growth.

``The company was in the early innings of improving their operations,'' said James Barrett, an analyst at CL King & Associates in New York. ``If they in fact improved their operations, specifically the confectionary business, the company would have commanded a much higher takeout price than was offered this morning.''

Barrett has an ``accumulate'' rating on Topps shares.

Shares of Topps rose 90 cents, or 10 percent, to $9.81 at 4 p.m. in Nasdaq Stock Market composite trading, indicating investors may be anticipating a higher offer. Before today, they had risen 12 percent in the past year.

Voted Against

Topps was founded by the Shorin brothers in 1938 as a chewing gum maker and developed its trademark Bazooka gum after World War II. In 1950, the company began selling trading cards, adding baseball cards in 1951 and introducing the Bazooka Joe character in 1953.

The company expanded its offering of the cards, which can be swapped or sold by collectors, and now sells ``Star Wars'' and wrestling cards. Some of its baseball cards now fetch thousands of dollars, with the 1952 Mickey Mantle card its most valuable, once fetching $60,000 at auction.

Topps was taken private in 1984 in a leveraged buyout led by Forstmann-Little & Co., then went public again as the Topps Co. in 1987, Wedbush Morgan Securities analyst Sean McGowan said.

Chief Executive Officer Arthur Shorin, who has led the company since 1980, agreed to retire within 60 days after the acquisition is completed, according to an SEC filing. Shorin's father and uncles started the business and his son-in-law, Scott Silverstein, is president.

``This will be a change in ownership, not a change in direction,'' Shorin said in a statement.

Three of the company's 10 directors, Arnaud Ajdler, Timothy Brog and John Jones, voted against the purchase, according to a filing with the Securities and Exchange Commission.

Ajdler, Brog and Jones were named to the board in July after they criticized management compensation and agitated for changes. Ajdler said he will campaign against the deal.

``We think that the $9.75 is not a fair price,'' Ajdler said in a telephone interview today. Ajdler's Crescendo Partners II is the company's second-largest shareholder with about 6.6 percent of the stock. ``We think the company's worth more. It was a flawed process.''

Job Cuts

Eisner had no comment beyond today's statement, spokesman Robert Zimmerman said. Topps spokeswoman Sharon Stern declined further comment.

Eisner, who founded Tornante in 2005 after leaving Disney, and Madison Dearborn, a Chicago-based private equity firm, are seeking to capitalize on the company's anticipated profit growth.

In January, Topps said it may exceed its fiscal 2007 profit forecast, buoyed by sales of U.S. sports cards and new candy products. The company cut 17 percent of its workforce six months ago to help boost profit.

Net income has fallen in each of the past five years, and the company in September 2005 ended an effort to sell the confectionary business after potential buyers didn't show enough interest. The company is debt free.

``It's great for Topps and the trading cards industry,'' said Elon Werner, a spokesman for Beckett Media LP in Dallas, which sells baseball cards. ``There's been a bit of an uncertainty in the company. Now that it's been bought, I don't know what Michael Eisner's involvement in the company will be but he's a great mass marketer of entertainment, and that's what collectibles are.''

Difficulty Competing

It may make more sense for a larger confectionary company to buy Topps' candy business, which includes Bazooka gum, Ring Pops and Push Pops, Bennett said.

``Topps as a standalone company had difficulty competing with the Wrigleys and the Cadburys and Hersheys of the world,'' Bennett said. ``I'm not sure how Michael Eisner is going to change that, unless he plans on changing the confectionary business and focusing on entertainment.''

Eisner, who turns 65 tomorrow, stepped down from Burbank, California-based Disney, the second-largest U.S. media company, in September 2005 after two decades as CEO. He then founded Tornante to invest in media and entertainment companies.

Topps would be his firm's biggest investment. Tornante, along with Spark Capital and Time Warner Inc., invested $12.5 million in closely held Internet television company Veoh Networks Inc. in April, and Tornante acquired Team Baby Entertainment, which makes college sports DVDs for children, in June.

Lehman Brothers Holdings Inc. advised Topps and Willkie Farr & Gallagher LP acted as legal adviser. Deutsche Bank was the financial adviser for Madison Dearborn and Tornante. Paul, Hastings, Janofsky & Walker LLP was legal adviser to Madison Dearborn and Munger, Tolles & Olson LLP advised Tornante.

Topps will seek better offers during the next 40 days, and the challenge for Lehman is to find a higher price, Bennett said. Wedbush's McGowan, who has a ``strong buy'' rating on Topps shares, said that other proposals are likely during that period and afterward.

The company ``could have traded at $12 on the strength of its turnaround, on the strength of its turnaround, its strong balance sheet and relatively conservative valuation,'' McGowan said in a note to investors.





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