Bloomberg News

Billabong Ends TPG Talks After Rejecting Sweetened $906 Million Takeover

February 28, 2012

Billabong, which had a market value of A$3.84 billion in May 2007, plans to sell assets, cut jobs and close stores as debt payments loom and retailers battle stalling demand worldwide. Photographer: Ian Waldie/Bloomberg

Billabong, which had a market value of A$3.84 billion in May 2007, plans to sell assets, cut jobs and close stores as debt payments loom and retailers battle stalling demand worldwide. Photographer: Ian Waldie/Bloomberg

Billabong International Ltd. (BBG), Australia’s largest surfwear company, ended talks with TPG Capital after rejecting a sweetened A$841.8 million ($906 million) takeover offer.

The Fort Worth, Texas-based buyout firm was prepared to raise its bid 10 percent to A$3.30 a share to gain access to the retailer’s accounts, Billabong said in a statement today. Unanimously rejecting the offer, the company’s board also said founder and largest shareholder Gordon Merchant and another director wouldn’t consider a bid of less than A$4 a share.

Billabong, which had a market value of A$3.84 billion in May 2007, plans to sell assets, cut jobs and close stores as debt payments loom and retailers battle stalling demand worldwide. The stock today retained most of the gain since TPG’s approach was disclosed this month, after Billabong said it was still ready to “engage” with the firm or another suitor.

“It’s not too dramatic a selloff,” said Stan Shamu, market analyst at IG Markets in Melbourne. “Most shareholders would have been thinking this is a great opportunity to salvage something out of the stock. Whichever way you look at it, it’s a tough industry to be in at the moment.”

Shares in the Gold Coast-based retailer, which fetched A$1.79 before Billabong disclosed TPG’s approach on Feb. 17, fell 2.3 percent to A$2.98 at the close of Sydney trading. The stock has declined 65 percent in the past 12 months.

Opposing Directors

A letter to the board from lawyers representing Merchant, who founded Billabong in 1973, and Colette Paull, who joined the company the same year, said both would oppose steps to let TPG conduct due diligence even with an offer of A$4 a share, the retailer said.

Merchant owns almost 15 percent of the stock and Paull owns 1.2 percent, according to the company’s 2011 annual report.

Any sale may have to be structured such that Merchant retains a stake in Billabong after a takeover, Andrew McLennan, an equity analyst at Commonwealth Bank of Australia in Sydney, said yesterday.

“The board is prepared to engage with TPG or any other party that makes a proposal which is in the best interest of the company and its shareholders,” Billabong said in its statement today.

The offer could be increased to A$3.85 a share and still be the cheapest comparable clothing sector takeover since at least 1998, according to data compiled by Bloomberg.

‘In Play’

“The company is in play -- there’s obviously a high level of interest,” said Nick Berry, a Sydney-based analyst at Nomura Holdings Inc. Still, Merchant’s opposition is an impediment to a takeover and Billabong’s earnings performance in the next 12 months “probably isn’t going to improve greatly,” he said.

After reaching a record high of A$17.67 in 2007, Billabong’s shares then slid 90 percent before TPG’s approach was disclosed, the biggest drop for any consumer discretionary stock in Australia’s benchmark S&P/ASX 200 Index in that period.

The company’s debt increased following acquisitions as Billabong sought to reduce reliance on its namesake brand, which generated almost all of its sales at the time of its IPO in 2000.

Profits tumbled as consumer spending slumped in the U.S., Europe and Australia and major stores introduced their own brands to compete with independent surf labels. The decline has been compounded as a stronger Australian dollar cuts the value of overseas sales when earnings are repatriated.

First-half net income fell 72 percent to A$16.1 million in the six months ended Dec. 31. That was the smallest half-year profit since the surfwear maker first sold shares to the public in 2000. Net debt totaled A$525.6 million.

Billabong said this month that it will close as many as 150 of its 677 stores worldwide by June 2013, and cut about 400 jobs. It also agreed to sell 51.5 percent of its Nixon accessory and clothing business to buyout firm Trilantic Capital Partners and management to raise $285 million and reduce borrowings by more than one-third.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Stephanie Wong at swong139@bloomberg.net


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