Get back in line, Upper Deck. Behind the mouse ears, OK?
Trading-card specialist Topps (NASDAQ:TOPP) is recommending that shareholders refrain from tendering their shares to Upper Deck. The renegade bidder and trading-card rival to Topps is offering $10.75 a share to those who wish to tender their shares.
Investors don't have to listen, of course. The only alternative currently on the table to cashing out at $10.75 through Upper Deck is the original $9.75-per-share buyout agreement. That March bid came from a group of private-equity investors, led by former Disney (NYSE:DIS) CEO Michael Eisner.
Does Topps really believe it can convince its shareholders that, given a choice between two all-cash deals, exiting investors should accept the one that's 9% lower?
Understand, though, that Topps has its reasons. This morning's press release argues that the Upper Deck offer comes up short because of antitrust regulatory concerns and the highly conditional nature of the bid itself.
The antitrust risks are farfetched. Yes, Upper Deck and Topps are the last two major trading-card manufacturers, but that is mostly by choice. There isn't much of a competitive moat here. Anyone with a printing press and a licensing-deal negotiator could jump into the fray if they so desired. We're down to just Upper Deck and Topps, but mostly because weaker players such as SkyBox and Fleer buckled, failed, and ultimately worked their way into Upper Deck's open arms.
Topps is in a bind. It genuinely believes the higher bid is the inferior one. It is concerned about the open-ended nature of the material-adverse-changes clause. It is worried about having to pay a small breakup fee to Eisner's group, especially if the Upper Deck tender somehow falls apart. Yet fatter potential suitors such as Hasbro (NYSE:HAS) and 4 Kids (NYSE:KDE) don't seem to have any interest in making a bigger splash in the fading trading-card business.
In short, Topps can't win. Unless Upper Deck raises its offer or Eisner's group matches the higher bid, Topps doesn't have an easy way out of this. Neither suitor has a real incentive to give Topps that kind of leverage. Eisner's group can simply bankroll a trading-card product with the breakup fee if that deal doesn't go through. Upper Deck has no reason to bid against itself as the one behind the top offer.
How fitting is it that this saga should come to a screeching halt just as the baseball season follows suit for the All-Star break? The difference is that, unlike many of the top stars heading out to San Francisco for the big All-Star Game this week, Topps keeps swinging but hits only air.
Timeline of the Topps tale:
- Tornante and Madison Dearborn Partners made a $9.75-per-share buyout offer in March.
- Upper Deck crashed the party with a $10.75-per-share offer a month later.
- Initially rebuffed, Upper Deck came back with a tender offer.
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Hasbro and Disney are Stock Advisor recommendations.
Longtime Fool contributor Rick Munarriz hasn't bought new trading cards in ages, but he does maintain a reasonable collection in good condition. He does not own shares in any of the companies in this story, save for Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
