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07-29-2006, 05:53 AM
Posted By: <b>bruce Dorskind</b><p><br />Growing up on the Upper East Side of Manhattan, Timothy E. Brog had no idea baseball cards had better uses than flipping.<br /><br />But in the late 1970’s, not yet a teenager, he bought a box of about 6,000 baseball cards, including a mint-condition 1967 card of shortstop Maury Wills, for about $90, he said. His father was not pleased, and was surprised when Mr. Brog later sold the collection for several thousand dollars.<br /><br />Now at 42, Mr. Brog, the manager of a tiny hedge fund, is taking his biggest gamble yet on baseball cards. For more than a year, he has been pushing for changes at the Topps Company, the longtime maker of those cards as well as Pokémon cards and Bazooka gum, accusing its management of leading Topps into irrelevance. Topps says it has a turnaround plan and says that Mr. Brog and his $25 million hedge fund, Pembridge Capital Management, lack credibility.<br /><br />Today, a bench-clearing brawl of a proxy battle comes to a showdown as shareholders vote on three directors for the company’s nine-member board.<br /><br />Mr. Brog and his main ally, the activist fund Crescendo Partners, have proposed an alternative slate of directors. Together, the two hold about a 7 percent stake in the company.<br /><br />Arthur T. Shorin, 70, who has been the chairman and chief executive since 1980, is up for re-election. He and his family control more than 7 percent of the Topps shares.<br /><br />Mr. Brog himself is seeking one of the seats, as well as Arnaud Ajdler of Crescendo Partners and John J. Jones, a former colleague of Mr. Brog who is a consultant to Trump Entertainment Resorts.<br /><br />“The company needs new energy, new blood,” Mr. Brog said. “If you look at their annual reports, they keep saying, ‘we’re turning things around, we’re turning things around.’ But they’ve never shown any signs of being capable of turning this company around.”<br /><br />Three major proxy advisory firms — Institutional Shareholder Services, Proxy Governance and Glass, Lewis & Company — have recommended Mr. Brog’s slate. Such recommendations carry weight among large institutional shareholders.<br /><br />Indeed, prominent institutional funds like Private Capital Management and Gamco Investors are among Topps’ biggest shareholders. Both declined to comment on today’s proxy vote.<br /><br />Though dwarfed by much bigger proxy fights, like that between Nelson Peltz and H. J. Heinz, the contest for Topps is the latest example of hedge funds and other activist investors trying to shake up well-known companies in noisy public campaigns.<br /><br />For nearly three decades, Topps dominated the baseball card business, and its Bazooka chewing gum, Wacky Packs and Ring Pops are a part of sugary childhood nostalgia for many. But the company’s performance has slumped for more than a decade. Its stock has not risen above $10 in 10 months. Its trading card business, once dominated by Major League Baseball and Pokémon, has been flailing.<br /><br />The company points to signs of a revival. Last month, it reported a 79 percent gain in first-quarter earnings from a year ago, on a 3 percent rise in revenue.<br /><br />Topps has also criticized the qualifications of Mr. Brog’s slate of directors. Mr. Brog, Topps said in a letter to shareholders, is president of “a small activist hedge fund with no public track record of performance and no employees.”<br /><br />Alluding to the call from Pembridge and Crescendo to explore again a sale of the company, Topps wrote in another letter to shareholders: “We are convinced that attempting a ‘quick fix’ sale of the company at this time will lead to a poor result — inadequate offers, a harmful waste of time and a disrupted Topps organization — when a focus on operations is needed most.”<br /><br />Topps declined to comment for this article beyond its previous statements.<br /><br />The Topps baseball card business began to slump in 1980, after a federal judge found that the company had illegally cornered the market. Although the ruling was reversed the next year, the decision opened the floodgates to competitors like Fleer and Upper Deck, inundating the market with a bewildering array of lines that drove card values down.<br /><br />Though this is the first proxy fight for Pembridge Capital, it is not Mr. Brog’s first. A lawyer at Skadden, Arps, Slate, Meagher & Flom for six years, Mr. Brog left to form the Edward Andrews Group, a small investment boutique. It was there that he waged his first campaign, against the specialty printer Vestcom International. Despite spending $16,000 in that fight, Mr. Brog said he prevailed when the company agreed to sell itself.<br /><br />Mr. Brog contends that the proxy fight with Topps was avoidable. After Pembridge first bought nearly 1 percent of Topps last year, Mr. Brog sent the company a 20-page letter of intent about a proxy challenge.<br /><br />Mr. Shorin then agreed to meet, Mr. Brog said, but to little avail: during the meeting, Mr. Brog asked the chairman to make changes, but Mr. Shorin promised nothing. Shortly afterward, Topps disclosed that it had retained Lehman Brothers in February 2005 to explore a sale of the company.<br /><br />At that point, Mr. Brog agreed to a truce. But when the company called off a sale last September, citing a lack of interest, Mr. Brog revived his campaign. In April, Eric Rosenfeld, the president and chief executive of Crescendo Partners, which has a 6 percent stake in Topps, joined forces with Mr. Brog.<br /><br />Both sides see hope for Topps. Major League Baseball has recently whittled the number of card licensees down to two, Topps and Upper Deck. The company has begun moving production of lines like Bazooka to Mexico to cut costs. And Topps is seeking to reintroduce the Bazooka brand with new flavors and new forms, like a twist-wrap and gum-filled lollipops.<br /><br />But for Mr. Brog, all this comes too little, too late.<br /><br />“We did not go out and look for a fight, but when management fails to execute on an operational plan and the board does not provide the appropriate oversight, we believe it’s our responsibility to assert our rights as shareholders,” he said.<br /><br />