SBJ/October 24 - 30, 2005/Other News

Fellows plots to get Callaway on course

George Fellows, the executive who came in from the outside, would seem to have been at a disadvantage when he became president and CEO of Callaway Golf on Aug. 1. He had never worked in the golf industry — much less the sports industry — and the most notable calling card on his resume was being head of Revlon in the mid- to late 1990s.

Though lipstick and lob wedges seem unrelated, Fellows sees common ground between the two companies, beyond the fact that they both produce consumer products.

“There’s a very interesting and unique element to cosmetics and, for that matter, golf. In neither industry does the consumer buy a new product because the old one is worn out,” Fellows said.

“No one buys a lipstick because the tube is empty, and no one buys a new driver because it’s worn out or it’s broken. They buy it because there’s a new technology or there’s some issue that’s interesting about the new product.”

Fellows is taking over a company that is no longer the powerhouse it used to be, particularly since founder Ely Callaway died of pancreatic cancer in July 2001. The company has lost money on its venture into the golf ball business, including its purchase of Top-Flite. New products failed to keep up with industry trends. Callaway has announced that it predicts a third-quarter loss of 6 to 12 cents a share, based on sales of $215 million.

Fellows acknowledged that executional details at Callaway have not been at the level they should have been.

“We’re in the process of remapping the entire developmental process to make sure we’re starting projects early enough and that we’re giving them enough time to be completed in an appropriate fashion so we’re not rushing towards the end to meet some arbitrary ship date,” Fellows said.

Fellows is moving more ballast around as he endeavors to right the ship. In a move announced late last month, Callaway is cutting 500 jobs, slightly more than 15 percent of its work force, in a restructuring intended to save $70 million over two years. According to published reports, the restructuring will cost about $12 million.

Also, golf ball manufacturing, which has been conducted on both coasts, will be merged into Top-Flite’s facilities in Massachusetts and New York to improve efficiency. As part of the move, Callaway’s golf ball manufacturing facility in Carlsbad, Calif., which Ely Callaway had built from scratch, will be closed before the end of the year.

Fellows said Callaway is expected to have “a very complete and robust new products program” in 2006. The new products, some of which will begin shipping in January, include a new Odyssey Tri-Ball SRT (Saturn Ring Technology) putter, new Big Bertha irons, an X series of woods and irons and Ben Hogan Apex irons.

Fusion technology, as in the company’s new FT-3 driver, will be at the core of what Callaway will be doing for the immediate future. But beyond that …

George Fellows says cosmetics and golf equipment both depend on the next big thing.
“If another technology comes on that supplants it, we’ll be there,” Fellows said.

Callaway intends to attack its golf ball woes with a number of new product introductions on the heels of its new HX Tour 56 ball. The recently completed consolidation of Top-Flite into Callaway is expected to help, with a lot of research and development efforts going toward Top-Flite.

Fellows is re-examining Callaway’s marketing mix and intends to increase the marketing and advertising budget in 2006, but wouldn’t divulge figures.

“We are going to be more aggressive in our marketing to make more people aware of what we have,” Fellows said.

Fellows said his charge from the board of directors is “to restore the profitability of the company to the levels it had traditionally enjoyed, regain whatever share erosion existed in small parts of the business and essentially restore the company to its pre-eminent position in the golf industry.”

While he is working toward that, Callaway has received several unsolicited bids to buy the company. One, a group including MacGregor Golf and Bain Capital Inc., was reported by the Los Angeles Times to offer $16.25 a share, or about $1.24 billion. The other, from Thomas H. Lee Partners and insurance mogul William Foley, was reportedly for $15.73 a share, or $1.2 billion.

After the announcements of the job layoffs, Callaway’s stock jumped 56 cents, to $15.09, but had since dropped to $13.45 at the close of the market Oct. 19.

Fellows called the possibility of a buyout “nonsense” and has called the bids too low. When asked whether he is completely ruling out the possibility of Callaway being sold, Fellows said, “That’s not my call. … That is in the hands of the board.”

Fellows has a clause in his contract that calls for him to get $7 million if the company is sold during his first year. Fellows said the clause is fairly standard for an executive at his level, especially since he moved from New York to California to take the job.

Bob Seligman is a writer in New York.

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