When the rest of the market saw no price as too high, the buyers of Topps deserve credit for refusing to be pressured into a higher bid.

By Avram Davis

In collector’s parlance, The Topps Co. at the start of last year would have been considered “fair to good.” For baseball cards that’s a nice way to say it has rounded corners, multiple creases and defects such as scuffing or pinholes. For a company, it means simply a languishing performance and stock price. But investing differs from card collecting in that the acquirer can ultimately influence the value of the property. In the case of Madison Dearborn Partners and Michael Eisner’sTornante Co., their purchase of Topps made for a perfect union that added value with their very presence.

Eisner, former chief executive officer of Walt Disney, and Chicago PE shop Madison Dearborn were first introduced to each other by John Madigan, the former chief executive officer and chairman of Tribune Company. “We had dialogues with him about how to be involved in projects together. We looked at a number of possibilities,” describes Michael Cole, a managing director at Madison Dearborn.

But when activist shareholder Pembridge Capital Management began pressuring Topps, the listed New York-based entertainment products marketer, to sell the company, the development piqued Eisner’s interest. Topps is primarily known for its sports trading cards, but also sells confectionary products — among them Bazooka Joe — as well as sticker collections and collectible sports games.  

When Eisner shared his interest in Topps with Madison Dearborn, the equity firm responded enthusiastically. “With a sports and entertainment brand, there is a lot more that can be utilized,” Cole said of the company. Specifically, the firm was interested in Eisner’s plan to take a group of “undernourished brands,” and apply “his talents, attention, and most notably his love to the company” to grow the brand.  

Madison Dearborn and Tornante were able to negotiate an exclusive deal with Topps in which the two firms together would acquire Topps for $385 million.  

It is relatively rare to identify a publicly listed company, negotiate exclusively and arrange an agreement without other competitors. The bidders were able to put together an attractive financing arrangement for the acquisition largely, Cole believes, as result of Eisner’s involvement in the deal and the high level of operations experience that he brought to the table.  

Despite the willingness of Madison Dearborn and the firm’s capital providers to proceed with the deal, the arrangement was far from a slam dunk.  

Pembridge Capital, the same activist investor that had initially pushed for a management change, opposed the Eisner takeover, along with Crescendo Partners. In the end, the Topps board voted in favor of the Madison Dearborn/Tornante deal, which only created more unrest. And the company’s analysts weighed in saying that the pair was paying too little for the property.  

Credit goes to the buyers, however, for being unmoved. “We thought and still think that we paid a fair price for the business,” Cole says.  

The acquisition agreement was written with the customary “go shop” provision, by which Topps could — and did — solicit other potential buyers within 40 days.  

A competing bid from Upper Deck, the company’s main competitor, came in shortly before the end of the “go shop” period, threatening to undo the Madison Dearborn/Tornante deal.  

A legal battle ensued, during which Upper Deck increased the offer to approximately 10% above Madison Dearborn and Tornante’s standing bid. The pair held firm.  

Despite the higher offer, Topps pointed to several “material” problems with the Upper Deck bid, citing primarily the financing and antitrust risk. New “go shop” case law precedents were set during the course of the legal battle. But in the end, the bid was withdrawn shortly before the scheduled shareholder vote.  

“[They] did everything possible that they could have done short of buying” to derail the initial offer, Cole describes.  

In the meantime, the credit markets started crumbling, and the initial terms under which the deal’s capital and financing were arranged had to be renegotiated. “We were very pleased to be able to take the financing that was committed to prior to the credit crunch, without making any material changes in the terms,” Cole said of the process.  

When asked what ultimately, led to the successful close of the deal, Cole hearkens back to Madison Dearborn’s good working relationship with Eisner, which allowed the firm “to weather a lot of storms that came with the deal.”  

Eisner, meanwhile, notes that the pair demonstrated the necessary balance of persistence and restraint in order to succeed on their terms. In speaking with Mergers & Acquisitions, he notes, “It’s always a combination of patience on one hand, and tenacity on the other — and knowing when to use which.”

And in the case of the Topps, he cites: “It was short, powerful bursts of tenacity, followed by long stretches of patience.”