Brunswick Corporation, Lake Forest, Illinois, announced it has agreed to sell its Retail Bowling business to Bowlmor AMF for $270 million, contingent upon customary closing procedures. Brunswick anticipates completing this transaction in approximately 90 days.
Brunswick Chairman and Chief Executive Officer, Dustan E. McCoy, says the proceeds from the sale will be used to strengthen Brunswick's marine and fitness segments.
"Brunswick Retail Bowling has long been a solid contributor to our Company, and last year had approximately $187 million in sales,' explained McCoy. "After careful consideration, however, we concluded that this transaction is in the best interests of our shareholders and the Retail Bowling business.”
In connection with its decision to sell its bowling centers, Brunswick also announced its intention to divest its Bowling Products business. Brunswick is targeting to complete that sales process by the end of 2014, during which time the company will continue to operate the business. Brunswick will retain its legacy and namesake Billiards business.
Sale of Retail Bowling Business
Brunswick stated that it had found the Bowlmor AMF offer, which it says was unsolicited, to be an opportunity to transfer ownership of its business at an ‘attractive valuation'.
"The bowling industry has been evolving as center counts decline and the customer mix shifts from predominately league bowling to casual bowlers seeking an entertainment-oriented experience,' McCoy continued. "For Brunswick to drive growth in this business, it would take continual development of new entertainment concepts and significant additional investment to implement these new concepts at new properties or to convert existing centers. We believe directing investments into select portions of our core Marine operations as well as our Fitness business provide better opportunities for greater returns. In 2013, the Marine and Fitness businesses together accounted for 92 percent of Brunswick's net revenues.
“Conversely, Bowlmor AMF's primary strategic objective is to invest in and grow its retail bowling business, which includes proven entertainment concepts in certain of its centers. With the addition of the Brunswick locations, Bowlmor AMF will increase its center count to 343 in North America, and, it will add some of the most dedicated and talented people in retail bowling.
"Finally, due to our exit from the Retail Bowling business, combined with similar market dynamics, we have retained Lazard to seek a suitable buyer for our Bowling Products business,' McCoy concluded.
Brunswick stated its current plan assumes that the eventual purchaser will retain both the manufacturing operations and the talented workforce of Bowling Products. During the sale process, Bowling Products will maintain ongoing operations and conduct business-as-usual, while keeping its employees, distribution network and customer base informed of the sale's progress.
Restatement of Financial Results
As a result of the Brunswick's announced sale of its Retail Bowling business and its intention to sell its Bowling Products business, beginning with the third quarter of 2014, Brunswick will report the results of these businesses, which were previously reported in the Bowling and Billiards segment, as discontinued operations. In addition, the results of the Billiards business will be included in the Company's Fitness segment.
Impact on 2014 results and 2016 targets
As a result of these divestitures and associated discontinued operations treatment, Brunswick estimates the dilution to EPS from continuing operations, on both a GAAP and as adjusted basis, to be approximately US $0.20 per diluted share for the full-year 2014. Further, Brunswick estimates that for 2014, the free cash flow from continuing operations will be lower by US $35 million to US $40 million.
Brunswick believes it can achieve the long-term financial targets included in its three-year plan, maintaining its original base case target of US $3.00 to US $3.40 earnings per diluted share in 2016.
Use of Proceeds
“Going forward, we anticipate net proceeds from both these divestitures and associated actions, which reflect our current estimates for taxes and liabilities to be paid, to approximate US $270 million to US $290 million,' explained McCoy. "We believe our best opportunity to increase shareholder value is to use these net proceeds to strengthen our marine and fitness segments. Further, we plan to consider the following: increasing the quarterly dividend, accelerating contributions to the Brunswick's under-funded pension plans as part of our de-risking strategy, and establishing a share repurchase program. Our highest priority will be to target investment opportunities in segments such as marine parts and accessories along with those in Fitness. Brunswick already has completed one such investment by acquiring Whale, a leading marine parts and accessories provider, and we anticipate additional acquisition activity in this area.”
Brunswick Corporation brands include Mercury and Mariner outboard engines; Mercury MerCruiser sterndrives and inboard engines; MotorGuide trolling motors; Attwood and Whale marine parts and accessories; Land 'N' Sea, Kellogg Marine, and Diversified Marine parts and accessories distributors; Bayliner, Boston Whaler, Brunswick Commercial and Government Products, Crestliner, Cypress Cay, Harris FloteBote, Lowe, Lund, Meridian, Princecraft, Quicksilver, Rayglass, Sea Ray and Uttern boats, and Life Fitness and Hammer Strength fitness equipment and Brunswick billiards tables and table tennis.