Coastcast Considers Going Private As Delisting, Competition Take Toll
By DAVID GREENBERG
With its golf club head manufacturing business wedged in an Asian sand trap, Coastcast Corp. has established a special committee of its board to consider whether it should remain public, a step that could lead to a management-led buyout or the sale of the company.
Chairman and Chief Executive Hans Buehler said the shrinking business, along with rising legal, auditing and filing fees associated with being a public company, led to the board’s move. If the committee decides that it is best for the company to go private, he will consider buying at a price of $2.05 to $2.20 a share possibly as part of a group that includes board member Paul Novelly.
“If somebody else wants to buy it and the price is right, I’m a seller,” said Buehler, who already owns 1.2 million shares, or 17 percent of the company.
Buehler didn’t say how much he would be willing to take if the company were sold.
The April 24 decision follows the Rancho Dominguez-based company’s delisting from the New York Stock Exchange last September. After a drop in business from its biggest customer, Callaway Golf Co., Coastcast reported a two-thirds decline in its revenue for the fourth quarter, to $8.1 million from $24.8 million for the like year-ago period. Losses totaled $2.3 million versus a loss of $2.5 million.
Coastcast’s stock price, which was at $1.80 per share prior to the board’s announcement, traded last week at $2.40 a share, much higher than the range Buehler said he is willing to pay. Other shareholders indicated they are wary of selling to Buehler for too low a price.
“He must see an opportunity to improve the business to provide a better return,” said Buzz Zaino, portfolio manager for Raleigh, N.C.-based Royce & Associates LLC, whose mutual fund contains 368,400 Coastcast shares, or 4.8 percent of those outstanding.
“I’d like to see it revitalized as a public company. But I think you need new management someone who will work for all the shareholders, not just for himself,” Zaino said.
Coastcast has racked up losses of $12.7 million over the past two years as it contends with a flight of its customers to cheaper metal fabricators in Asia. Nevertheless, the company still has a solid balance sheet. At the end of 2002, Coastcast had $15.7 million in cash, or $2.06 per share, and no long-term debt.
After the NYSE delisting, Coastcast now trades on the over-the-counter bulletin board. The added cost of remaining public, including shareholder reports and Securities and Exchange Commission filings, totals nearly $1 million annually, Buehler said.
“The cost of being a public company is very huge. Unless you are a large corporation with a big market cap, it is illogical,” Buehler said.
As recently as July 2000, Coastcast’s stock was trading at $18 per share largely from sales of stainless steel and titanium woods, irons and putters to Callaway Golf Co., Cleveland, Ping and Titleist. Coastcast also makes surgical tools and orthopedic implants.
But those customers have been diverting more of those purchases to China, where labor is significantly cheaper. The biggest blow came from Callaway, which one year ago comprised 50 percent of Coastcast’s revenue.
“We’re taking our business where it’s handled efficiently,” said Larry Dorman, spokesman for Callaway. “We’re doing more business overseas.”
Zaino said Buehler has for years been resisting investor pressure to expand beyond the golf club head market, which still comprises about 88 percent of sales. Meanwhile, the surgical and orthopedic products represent the remaining 12 percent, up from 10 percent a year ago.
“It’s been an asset rich and business poor company,” said Zaino. “Without the pressure of a bad balance sheet, you have the leeway to improve your business, change your product mix and change the company once again.”