Business Day

Billabong plunges on less-than-inventory offer

- BRETT FOLEY Melbourne

BILLABONG Internatio­nal, the surfwear maker whose founder last year said he would not sell for A$1bn, fell to a record low in Sydney trading after entering talks on a A$287m ($300m) takeover.

The company fell 27% to close at 53.5 Australian cents. The fall was 11% below the 60c nonbinding offer that Billabong is discussing with a group including Sycamore Partners Management, and that values the clothing retailer at less than the inventory in its stores and warehouses as of December 31.

Billabong, hurt by a consumer spending slump and competitio­n from major retailers, last year rebuffed an approach from TPG Capital worth almost A$842m.

It has shut shops, fired employees, written down its brands and breached terms on its debt. TPG and another bidder later made lower offers and walked away after viewing Billabong’s accounts.

“There’s still a lot of uncertaint­y around whether the offer will go ahead at 60 cents,” Melbourneb­ased Evans & Partners analyst Tony Wilson said yesterday. “I’m not surprised it should be at some discount,” he said.

Under the proposal, Billabong founder Gordon Merchant and former employee Colette Paull must exchange their combined shareholdi­ng of about 16% for stock in a vehicle being set up for the takeover. Mr Merchant started by cutting board shorts on his kitchen table in 1973 and selling them to Gold Coast surf shops, according to the company’s website.

Billabong CEO Launa Inman declined to comment directly yesterday on Sycamore’s bid or the takeover process.

Another 8.9% of the vehicle is available for shareholde­rs who do not want to take the 60c cash and there is no guarantee that the transactio­n will proceed, the company said in Tuesday’s statement.

“Investors need to take the opportunit­y to exit the stock,” Nomura analyst Nick Berry, said in Sydney on Tuesday.

The two sides will discuss Sycamore’s offer for 10 business days and shareholde­rs do not need to take any action yet, the company said in its statement on Tuesday.

Takeover approaches have been “very disruptive” and have taken up all but five weeks of the 10 months she has been in the job, Ms Inman said on the sidelines of the Bloomberg Australia Economic Summit yesterday. “How do you push forward change when there’s such uncertaint­y about ownership?” she told reporters in Sydney. “I do believe the strategy is right, the board has endorsed that. What we need to continue to do now is implement it, regardless of ownership.”

The Sycamore-led group, which includes former Billabong director and former South African pro-surfer Paul Naude, initially indicated it would pay as much as A$1.10 a share when it first approached Billabong last December. In January, Altamont Capital Partners and VF Corporatio­n also said they would consider a bid that high as they sought to conduct due diligence on the company.

Both bidders were examining offers of as little as 50c a share, people with knowledge of the matter said on April 4. Altamont is not being included in the current talks, Billabong said on Tuesday.

“The business appears to be in worse shape than low expectatio­ns,” Commonweal­th Bank of Australia analyst Jordan Rogers wrote in a note to clients yesterday. It is “far too early to see any of the benefits” of efforts to revamp the firm, he said.

The A$287m proposal from the Sycamore-led group values Billabong at little more than the A$225m it raised selling new stock to share- holders last year. It is less than the A$289m value put on its inventory of clothes and accessorie­s as at December 31, according to the company’s most recent balance sheet.

Before the latest bids, TPG made two separate approaches to Billabong last year. TPG offered as much as A$3.30 a share in February. Mr Merchant said at the time he would not support an offer as high as A$4 a share from TPG, according to a regulatory statement. That would have valued the company at about A$1.02bn, according to data.

TPG returned with a A$1.45-ashare provisiona­l offer in July, which it eventually dropped. Another unnamed bidder that people identified as Bain Capital also considered a A$1.45 bid before walking away in September. At its peak in May 2007, Billabong was valued at A$3.84bn. On February 22, it reported a record loss in the six months ended December 31 on A$567m of charges, as it wrote off most of the value of its main brand. It would post 80% of its assets and 85% of its earnings as security to its lenders after breaching terms on its debt, Billabong said when announcing its half-year results that day. Bloomberg

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Launa Inman

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