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Billabong International Ltd. (BBG) received a A$694 million ($707 million) offer from Bain Capital Partners LLC, said people familiar with the matter, setting up a possible bidding war with rival suitor TPG International LLC.
Bain, the Boston-based private equity firm, has started studying Billabong’s financial records, two people with knowledge of the process said, declining to be identified as the information is private. The surf-wear maker said in a statement today that the A$1.45-a-share conditional cash bid matched TPG’s offer, without naming the second suitor.
Billabong jumped in Sydney trading after saying neither offer is sufficient and it’s allowing due diligence in an effort to draw a higher bid. The company, which last month posted its first loss since going public in 2000, became a takeover target as its stock dropped about 90 percent in the past five years.
“It’s great news for shareholders of Billabong because it adds pricing tension,’ said Tim Montague-Jones, senior equity analyst at Morningstar Inc. (MORN) ‘‘The probability is quite high that a higher offer could come through. A deal could get done.”
Shares of Billabong rose 7.5 percent to A$1.365 at the close of Sydney trading, the biggest daily gain since July 24, and swelling the company’s market value to A$654 million.
Billabong has been retrenching amid weak retail spending and as consumers increasingly opted for other fashion brands. The company had 634 stores in Australia, Europe, and the Americas as at the end of June after closing 58 outlets during the previous 12 months. Another 82 are slated to close this financial year and Billabong may cut 15 percent of its workforce, the company said Aug. 27.
TPG, the buyout firm run by David Bonderman, started due diligence on Billabong in late August, according to the Australian company. TPG could raise its bid to about A$1.60 a share, Nomura Holdings Inc. analyst Nick Berry wrote in a July 24 report.
Neither offer “reflects the fundamental value of Billabong in the context of a change of control transaction,” the retailer said in its statement. There’s no guarantee the bidders will produce a bid that Billabong’s directors can recommend to shareholders, the company said.
Billabong in February rejected an offer of A$3.30 a share from TPG that valued the company at A$851 million. Founder and largest shareholder Gordon Merchant, together with director Colette Paull, said they wouldn’t consider a bid of less than A$4 a share. Billabong has since increased its issued capital by 86 percent after it raised A$225 million selling new stock at a discount to repay debt.
Merchant, a former surfboard-shaper who still owns 14 percent of the company, started stitching Billabong’s clothes in his kitchen in 1973, according to the company’s website.
Billabong said July 24 that TPG’s bid “may be refined” following due diligence. Colonial First State Investment Ltd. and Perennial Value Management Ltd. agreed to sell about 12.5 percent of Billabong’s issued capital to Fort Worth, Texas-based TPG, Billabong said July 24.
The private equity firms have been granted access to Billabong’s books following a slump in sales and operating losses in Australasia, Europe and the Americas. Chief Executive Officer Launa Inman, a former managing director of Wesfarmers Ltd. (WES)’s Target discount department store, has been forced to sell items at a loss to clear stockpiles, as it racked up charges for closing store leases early.
TPG sold its stake in Australian retailer Myer Holdings Ltd. (MYR) in a 2009 initial public offering that raised A$2.1 billion, Australia’s biggest that year. TPG and Carlyle Group bought Australian hospital operator Healthscope Ltd. for A$2.7 billion, including debt, in 2010.
Bain last August agreed to buy MYOB Pty Ltd., an Australian maker of business-management software, in a deal valued at about A$1.2 billion, people familiar with the matter said at the time.
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