The art of valuing companies is a lot like grading trading cards. Popular ones in mint condition will fetch a king's ransom while fringe players with torn edges are easily discarded. So perhaps that's why it's intriguing to see Topps (NASDAQ:TOPP) -- definitely a fringe player with torn edges -- being bid up as if it were a Honus Wagner tobacco card collectible.
The story here got interesting in March when Topps -- which creates and markets entertainment and confectionary products -- accepted a buyout offer of $9.75 per share in cash from Tornante, an investment group led by former Disney (NYSE:DIS) CEO Michael Eisner. Rival bidders had 40 days to top the Topps offer.
"Don't wait up," I wrote at the time, pointing out how the company failed to find a suitor for its faster growing confectionary business two years ago. I was wrong. An offer came out of left field. More specifically, the offer came from the Upper Deck.
Now investors must consider money, motives, and perhaps Eisner's own brand of magic.
In come the bleacher bums
Upper Deck is offering $10.75 per share in cash for its rival. Topps will consider the offer, even though it is not sure if it's a superior proposal.
That's usually a comical stance. Topps insiders want shareholders to accept the lower cash price because Eisner's public position is to run the company with all of its employees. A deal with Upper Deck is likely to bring about restructuring as redundancies are shaved.
So Topps is being selfish, right? Shouldn't shareholders, being cashed out in either scenario, be able to quickly spot the "superior proposal" being offered as Upper Deck's deal with the thicker purse?
Not so fast. Upper Deck and Topps are the two remaining sports trading card companies. In grading terms, these are two minor leaguers with creases. Kids are too consumed by video game consoles and social networks these days to snap up baseball cards and file away the choice ones in protective binders. It's certainly not a lost hobby, but it is one that is being challenged by high-tech diversions.
That makes concerns of regulatory roadblocks seem silly. The FTC is wary of XM (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI) merging because it would represent a monopoly, but Topps and Upper Deck is more like two dinosaurs angling for the honeymoon suite at the Brontosaurus Motel as the meteor shower starts to pick up outside.
It would be a shock to see regulators get in the way here. However, that also leaves Topps with a more feasible worry: Will an equally punch-drunk Upper Deck be able to finance the deal? That is the real question here. Lenders may be rightfully wary of bankrolling Upper Deck's offer, even though Upper Deck claims to have commercial financing in the works.
Swinging for the Upper Deck
Upper Deck needs Topps, and not just for the dino lovin'. It has to be worried about what a stagnant company like Topps could do under an entertainment industry vet like Eisner. Say what you will about Eisner's final days at Disney, the guy was a film entertainment legend before he joined Disney in the 1980s, and helped guide Disney's renaissance early in his tenure at the family entertainment giant.
Eisner's investing moves have been minor since leaving Disney. After acquiring a stake in video-sharing site Veoh, bankrolling online serials, and snapping up a niche sporting DVD production company, buying Topps would be Tornante's biggest catch.
Whether he is conjuring ways for Topps to matter in the "clip culture" age or if he's getting in touch with his inner baseball card collector, Eisner's a micromanager with an idea well that rarely runs dry. No, I'm not suggesting that Topps' iconic Bazooka Joe is going to be the next pop culture phenomenon, but I think that it's time for Tornante to spill the beans on what it wants to do with Topps -- especially if it thinks it can get away with a cheaper offer.
It probably can't. Shareholders can weigh cash. Eisner's company will have to up the ante to get the deal done now. At the very least, matching Upper Deck's offer. If not, it risks Upper Deck coming through with the financing, clearing the regulatory hurdles, and leaving Topps with little choice but to accept that the superior proposal is not the selfish one.
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Longtime Fool contributor Rick Munarriz hasn't bought trading cards in ages, though he still keeps his old cards around. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story, save for Disney. The Fool has a disclosure policy.
