Image: Topps baseball cards
Charles Krupa  /  AP file
Ever since the original baseball card maker, The Topps Co., announced in March that it had accepted a private equity takeover offer, execs have been forced to defend the proposed sale.
updated 9/17/2007 5:23:47 PM ET 2007-09-17T21:23:47

Baseball cards, the stuff of sports idols and childhood memories, sure are creating a lot of hostility lately.

Ever since the original baseball card maker, The Topps Co., announced in March that it had accepted a private equity takeover offer, executives have been forced to defend the proposed sale, with accusations of bad judgment and lawsuit threats flying after a rival tried to get involved.

The Tornante Co., an investment firm controlled by former Disney chief executive Michael Eisner, and the Madison Dearborn Partners private equity firm agreed in March to buy New York-based Topps for $385.4 million. The offer of $9.75 per share represented a 9.4 percent premium over the stock price at the time.

On Monday, Topps shares closed at $9.19 amid uncertainty about the buyout.

The bid’s fate could be decided at a special shareholder meeting Wednesday, although the vote could be postponed yet again. It has been postponed twice already. Topps says the deal will deliver “certain and good value” to shareholders and urges them to vote for it, a company spokesman said Monday.

Critics say the price is too low and the sale process was unfair. Hedge fund Crescendo Partners, which holds a seat on the Topps board, called for the resignation of the entire board and asked shareholders to vote down the offer. It objected to the low price and said the company had not properly studied all its options before agreeing to the Eisner deal.

To complicate matters, Upper Deck, Topps’ only rival in the market for baseball cards, launched a hostile bid of $10.75 per share on May 24. The offer was withdrawn Aug. 21, prompting both companies to threaten to sue.

Topps started shopping the company in December 2006 and said it contacted more than 100 potential buyers. Since no others were interested, it contends the Eisner deal is the best option, especially given the industry’s challenge of attracting younger buyers who have so many other entertainment options.

In addition to baseball, football, basketball, Star Wars and other trading cards as well as stickers, Topps generated a bit less than half of its $326.7 million sales in the last fiscal year from Bazooka bubble gum, Ring Pops, Push Pops and other candy.

An investment in Topps would have yielded low-single digit returns for the period from March 2002 to March 2007, while putting money in the S&P 500 or a composite index of peers would have generated a return of nearly 40 percent, according to a Topps analysis in its annual report. The poor performance is due partly to soaring costs for royalty payments to players and leagues; they jumped to $34 million in 2007 from $24.9 million in 2005.

Topps reported an 11 percent increase in sales last year that boosted its operating margin, however. This and the growing market for higher-end sports memorabilia means the industry may have room for growth and new products.

“I see where someone could be out there looking at this industry and looking for it to take off again,” Card Trade Editor Scott Kelnhofer said. “Over the years we’ve always seen something come full circle again, where something once popular becomes popular again.”

Some observers doubt Upper Deck’s effort, launched after a judge said Topps must consider other offers, was a serious one.

Yet it produced a barrage of accusations: Topps said Upper Deck was just fishing for confidential business information without a real intent to buy, and Upper Deck accused Topps of withholding financial information it needed to decide whether to proceed.

Both sides now say they may sue.

“Your conduct has been shameful, indefensible and, in my judgment, manipulative,” Topps’ lead director Alan Feder wrote in a letter to Upper Deck Chief Executive Richard McWilliam in late August, after Upper Deck withdrew its offer.

Upper Deck responded that Topps “erected a series of hurdles designed to frustrate Upper Deck’s ability to move forward.” They included Topps’ refusal to disclose player and league contracts, pricing details and profit figures broken down by product line, according to Upper Deck.

Eisner founded Tornante in 2005 to invest in media and entertainment opportunities. An Eisner representative declined to comment ahead of the vote.

Upper Deck’s McWilliam is a relative newcomer to an industry that operates mostly out of the limelight. He started Carlsbad, Calif.-based Upper Deck 18 years ago, and has been credited with being an innovator, changing the industry by introducing higher-priced cards with sticker holograms to prevent counterfeits as well as better quality photos and cardstock.

When Upper Deck started, its 89 cents per pack price tag was considered high in comparison to Topps basic pack’s price of about 45 cents to 50 cents. High-end card packs now sell for hundreds of dollars each to investors or collectors looking for the rarest or most valuable cards.

Topps CEO Arthur Shorin, 72, has led the company since 1980 but promised to step down if the Eisner takeover goes through. For the past few years, Shorin’s son-in-law Scott Silverstein has served as the company’s chief operating officer and president.

If shareholders vote down the Eisner deal, and the private equity players don’t raise their bid, Crescendo may try to replace the board and buy back shares in a Dutch auction at $10 to $10.50 a share, a Crescendo spokesman said. Crescendo has the backing of Timothy Brog, president of Pembridge Capital Management LLC and a director on the 10-member board.

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