Shares of Callaway Golf Co. (ELY) tumbled as much as 16% on Friday after the golf-retail company announced it entered into an agreement to acquire German lifestyle-outdoor brand Jack Wolfskin for approximately $476 million.
Callaway Golf shares were down 13%, or $2.48, to $16.45, pushing the company's shares to their lowest since February, despite hitting a peak of $24.37 last month ahead of positive third-quarter earnings.
The stock-price plunge reflected investors' dissatisfaction with the announced deal, which some view as a move away from the company's core focus and brand. Callaway Golf made a similar acquisition in 2017 of Ogio-TravisMatthew, which was also viewed by investors as a dogleg-left away from the company's roots.
"The market obviously isn't happy with them moving away from what they know," said Norman Levine, a managing director and portfolio manager with Toronto-based wealth management firm Portfolio Management Corp. "Their TravisMatthew purchase was also clothing - not golf related - and it's clear this bigger move into apparel and away from golf is worrying some investors."
To be sure, equity analysts at Jefferies LLC including Randal Konik noted in a report on Friday that while they don't "view the acquisition as 'necessary' (i.e. golf isn't 'dead'), it presents the potential for significant distribution synergies/revenue diversification and margin enhancement."
"Along with already strong club market share, a growing ball biz, strong performance in OGIO/TravisMathew, and its Topgolf stake, we see ELY as very attractive and reiterate our 'buy' rating," Konik said.
Callaway Golf will release its next earnings report in February 2019; the deal with Jack Wolfskin is also expected to close in early 2019.