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Billabong Gives Buyout Group Access to Data After Review

December 23, 2012

Billabong Gives Buyout Group Access to Data After Reviewing Bid

Billabong failed to make an annual profit for the first time since a 2000 listing this year as it sold stock at a loss to clear shelf space, paid penalties to break store leases early, and cut the value of its brands. Photographer: Ian Waldie/Bloomberg

Billabong International Ltd. (BBG), Australia’s largest surf-wear company, agreed to give a buyout group including Sycamore Partners LLC access to its financial data after reviewing their A$527 million ($548 million) offer.

The group, which includes director Paul Naude, will conduct due diligence on a non-exclusive basis with the process expected to take as long as six weeks, Gold Coast, Australia-based Billabong said in a statement today.

Billabong announced its fourth bid from a buyout firm in a year on Dec. 19 after Naude, who heads its Americas division, and Sycamore offered A$1.10 a share for the business. Billabong cut its profit forecast by as much as 49 percent in the same statement with Chief Financial Officer Craig White departing the next day.

“There remain significant questions regarding the future earnings potential of Billabong,” analysts led by Shaun Cousins at JPMorgan Chase & Co., said in a Dec. 20 note to clients. “We believe Sycamore Partners is well positioned to turn around Billabong.”

The stock rose 0.6 percent to 83 Australian cents as of the close of trading in Sydney, paring this year’s decline to 41 percent.

Billabong this year failed to make an annual profit for the first time since it sold shares in 2000 as it sold stock at a loss to clear shelf space, paid penalties to break store leases early, and cut the value of its brands.

‘No Guarantee’

“The board of Billabong reiterates that there is no guarantee that, following a period of due diligence by the consortium, an acceptable binding proposal will be forthcoming,” the company said in today’s statement.

Weaker-than-expected sales over the past six weeks, traditionally the busiest period for retailers, as well as restructuring costs, will push down earnings before interest, tax, depreciation and amortization this year to between A$56 million and A$63 million, the company said Dec. 19.

Billabong, which had previously forecast annual profit of as much as A$110 million, also said it may have to revalue assets, a process which could further reduce net income, the company said.

The surfwear company has missed its target for earnings more than 10 times since 2007, according to a chart produced by JPMorgan.

Naude, who’s headed Billabong’s largest division by sales since 1998, temporarily stepped aside as a director on Nov. 19 to pursue the leveraged buyout. The South African owns about 0.2 percent of Billabong’s stock, according to data compiled by Bloomberg.

Surfing Champion

He won his country’s championship board event while working as a professional surfer in the 1970s, and headed the Laguna Beach, California-based Gotcha brand’s South African unit in the 1980s before joining Billabong, according to the book, Greg Noll: the Art of the Surfboard.

Sycamore’s $369 million bid for Talbots Inc. was accepted by the Hingham, Massachusetts-based women’s clothing retailer’s board in June. Sycamore also acquired a 51 percent stake in Mast Global Fashions, the apparel-sourcing division of Victoria’s Secret owner Limited Brands, in November 2011.

Naude’s Dec. 19 offer would price Billabong’s equity and net debt of A$688 million at about 11.6 times the median of its latest forecast Ebitda. That compares with a median of 14.8 times Ebitda in 16 takeovers of clothing companies worth more than $100 million over the last five years.

The offer is less than 14 percent of Billabong’s peak market capitalization of A$3.8 billion in mid-2007, and little more than half the A$1.02 billion value that founder Gordon Merchant said in February he’d turn down if TPG International LLC, which had made a takeover approach, offered it.

TPG, the private equity company controlled by David Bonderman, pitched offers to Billabong this year from A$1.45 to A$3.30 a share before walking away in October without giving reasons.

An unnamed bidder, which people familiar with the matter identified as Bain Capital LLC, dropped an offer in September after carrying out due diligence.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net


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