Synonymous with baseball cards, Topps has been a stagnant stock.
Crescendo Partners is leading an activist battle.
The firm takes issue with the company's capital allocation. The company disagrees.
Position: None
When I was a kid, I loved collecting baseball cards and football cards, and everyone in my neighborhood had the same passion, trading cards and then just lying around reading all the stats on the back, and occasionally throwing the cards to see who could throw farther (whoever won got to keep both cards). Since then, kids have found new passions, and Topps (TOPP - commentary - Cramer's Take), despite having an enormous cash balance, has found itself stagnating.
Because of that stagnation, Topps is now engaged in a battle with far greater stakes than card-flipping: Crescendo Partners, which with Pembridge Capital owns 5.9% of the outstanding shares at an average price of $8.77, wants changes at the stagnating company.
According to the Topps Web site; "The Topps Company was founded in 1938 as Topps Chewing Gum, and in its early years produced a popular penny 'Topps Gum' from a factory in Brooklyn, N.Y. After World War II, the company developed Bazooka Bubble Gum, and in 1950, added trading cards to its product line. Baseball cards appeared in 1951 and quickly became a vital part of pop culture, a tradition that continues to this day, and includes football (both American and European) and basketball, in addition to entertainment cards and stickers and albums. In July 2003, Topps acquired WizKids, LLC a designer and marketer of collectible strategy games. Topps maintains offices in Canada, the United Kingdom, Ireland, Italy, Brazil, and Argentina, in addition to the U.S."
A brief look back at the company's numbers over the past five years will provide a good context for this activist battle. Sales have declined 3% over that time to $293.8 million from $302.9 million in 2001, and operating income fell to a loss of $2.3 million in 2005 from a profit of $36.8 million in 2001. And the chart below shows that Topps has a history of underperforming the broader market.
Topp Rank Activism Fight The stock's long-term underperformance and healthy cash balance have lured two firms into battle
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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.
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