T earDrop Golf announced plans Oct. 18 to merge with a privately held Toronto company – Gen-X Sports – in a deal that will bring much-needed financial help to the Illinois equipment maker, but seriously dilute the ownership position of current shareholders at the same time.
The proposed transaction provides for Gen-X, which sells snowboards, skateboards and scooters under the Oxygen brand, to receive 160 million shares of TearDrop stock and to contribute $10 million of additional financing to the combined companies.
Once that deal is closed, after a due diligence process, the merged company intends to exercise a 1-for-15 reverse split, which would mean there would be approximately 11 million shares of outstanding stock, more than 90 percent of which would be owned by Gen-X.
“Until we know how profitable Gen-X is, we have no real basis for valuing the company that will result from this merger,” said Casey Alexander, a special situations analyst with Gilford Securities in New York.
TearDrop president and chief operating officer Andrew Kairey said there was not much he could comment on because the deal was still being put together. It also needs to be reviewed by the Securities and Exchange Commission and approved by TearDrop shareholders, processes could take as long as four months. A name for the new company has not been determined, he stated, and neither his nor chief executive officer Rudy Slucker’s roles in the future entity have been determined.
Gen-X Sports president John Collins, whose 9-year-old company also sells excess inventory for sporting goods suppliers, said initial contacts occurred the week of Oct. 9.
“We’re 100 percent committed to continue with these brands,” said Collins. “There’s good equity in them, and they make terrific products. We want to build on what TearDrop has accomplished. We don’t want to rip it apart.”
Collins disputed speculation that the primary motivation for the Canadian concern, which also has offices in California and Switzerland, is to use this merger to achieve publicly traded status.
News of Gen-X’s intent came just before a Nov. 1 due date on a $500,000 loan payment TearDrop must make on debt that exceeds $25 million. Meanwhile, creditors – some of whom for months have been owed tens of thousands of dollars – remained hopeful that they would soon be made whole.
“They say everybody is going to be paid,” said one, “and they’re hoping to get everybody paid by the (January) PGA Merchandise Show.”