2000: TearDrop future may be decided next month

Once TearDrop Golf filed for bankruptcy protection Dec. 4, the big question among industry watchers was: Who’s going to buy its assets?

It appears that the mystery will be solved Jan. 19, the day a U.S. Bankruptcy Court judge in Delaware will consider bids and decide on the purchaser of the troubled equipment maker. All proposals must be submitted to the court by the day before, and the highest bidder will be awarded the purchase.

So who will that be?

Probably Gen-X Sports, the Toronto-based company that signed a letter of intent last October to buy TearDrop, which makes Tommy Armour, Ram and TearDrop golf products. Gen-X withdrew that proposal about a month later when TearDrop released horrendous third-quarter earnings figures, but Gen-X left the door open for a possible future deal, saying it would reconsider a bid for TearDrop’s assets so long as they were “free and clear of all liens and encumbrances.”

In other words, Gen-X decided it would step in only after TearDrop filed for bankruptcy protection. That is exactly what it has done.

Executives at TearDrop and Gen-X declined to return phone calls seeking comment.

Court documents show that Gen-X wants to pay $18 million for all of TearDrop’s assets, listed as having a value of $31.3 million, and is asking the judge to accelerate the sale process. (TearDrop listed liabilities of $30.7 million.)

“The debtor’s (TearDrop’s) debilitating financial condition necessitates that its assets be sold as quickly as possible to maximize their value,” the document read. “A delay in the sale of the assets will reduce their value by a significant amount.”

According to Casey Alexander, a special situations analyst with Gilford Securities, a New York investment bank, Gen-X’s goal is to get a deal closed as soon as possible.

“Clearly, they are trying to use the bankruptcy court to slam through a shutout bid for TearDrop’s assets,” Alexander said. “And they are using the fact that they need a timely disposition of the sale to force it through the court quickly before anyone else steps in.”

Industry sources say that as many as three other companies also are interested in some or all of TearDrop’s assets, and the names most frequently mentioned are Golfsmith (for Tommy Armour and/or Ram) and Adams Golf (for the putter business). “But are they willing to pay more than $18 million for the whole thing?” Alexander asked. “I doubt it.”

Another complication for potential suitors, Alexander adds, is a stipulation saying that any overbids must be for the same assets Gen-X is willing to buy.

“What that is attempting to do is close out companies who may want one of the TearDrop businesses, for example, but not all three,” Alexander said. “My evaluation at the moment is that Gen-X has the lead because it has done all the due diligence, it has the support of TearDrop, it is working with its executives on this and it has put in a very strong first bid.”

One person who would surely like to see that bid go through is TearDrop chief executive Rudy Slucker, who owns 10 percent of the 5.3 million outstanding shares of stock that once traded as high as $14 each but were valued at nine cents on Dec. 4. The $18 million purchase price would enable him to pay off the company’s two secured loans, including about $15 million to Congress Financial.

“And that will take Rudy off the hook financially there because he personally guaranteed $2.25 million of that loan,” Alexander said.

But it is not likely to help any of the unsecured creditors that did business with TearDrop and are owed hundreds of thousands of dollars. Among those who stand to lose are golfers (and former product endorsers) Fred Couples and Tommy Tolles, the Pebble Beach Co., True Temper, Forbes magazine and the New York Times Co., all of which were part of a court document listing the top-20 unsecured creditors. Published reports have pegged the highest claim at more than $600,000. And an attorney for one of the creditors said the likelihood of any of those getting paid is slim.

“The only way for that to happen is if there is a bidding war for the company and the price soars well above the $18 million Gen-X is talking about,” he said. “And I don’t see that happening.”

The other big losers in this deal are TearDrop employees. Many have been laid off in recent weeks, and many have been hit hard financially because they had filled their retirement plans with company stock that is essentially worthless.

“A lot of people have been really hurt by what’s happened there,” said a former TearDrop employee. “I know friends who have now lost tens of thousands of dollars as a result, and they are not sure when or how they are going to be able to retire.”

One person who does not appear ready to retire from the golf business is Slucker. At least not if the Gen-X bid is accepted. According to court documents, the company has made an offer to the soon-to-be-former CEO of TearDrop of an “employment/consulting agreement,” ensuring that the New Jersey entrepreneur would still have a hand in the running of those businesses.

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