Alumni of Bain & Co., the consulting firm formerly led by Mitt Romney, are squaring off in a A$527 million ($557 million) takeover battle for Billabong International Ltd. (BBG), Australia’s largest surfwear maker.
Jesse Rogers and Stefan Kaluzny, who previously worked for the Boston-based company, have put their private equity firms Altamont Capital Partners and Sycamore Partners Management behind rival bids for Billabong after three other approaches were rejected or scrapped over the past year.
Altamont and VF Corp. (VFC), the largest U.S. clothing company, will match a A$1.10 offer that Sycamore and Billabong’s U.S. head Paul Naude made Dec. 19, the Gold Coast, Australia-based company said in a regulatory statement yesterday. The shares surged 16 percent to 98 Australian cents at the close in Sydney today, 11 percent lower than the offer price. VF rose 3.3 percent to $153.88 in New York yesterday.
The arrival of a second bidder may not create competitive tension to drive up the offer price as “you’ve already had a number of proposals go by the wayside,” said Grant Saligari, a Melbourne-based analyst at Credit Suisse Group AG who rates the stock underperform with a price target of 38 Australian cents.
“They’ll be glad to get any offer they get, the company is in such disarray,” saidSaligari.
The Altamont and VF Corp. (VFC) proposal is conditional and subject to due diligence, Billabong said.
VF is primarily interested in the Billabong brand while Altamont wants the company’s other brands and assets, the companies said today in a statement.
In 2011, Chief Executive Officer Eric Wiseman engineered the $2.3 billion takeover of boot maker Timberland Co., VF’s biggest takeover. The Greensboro, North Carolina-based company has accelerated growth by acquiring makers of action sports and outdoor brands including North Face and Vans.
Billabong’s shares have plummeted 34 percent in the past year, following a 78 percent fall in the previous 12 months, as it recorded its first annual loss since a 2000 listing, sold inventory below cost to clear shelf space, paid penalties to break store leases early, and cut the value of its brands by A$343 million.
The stock hasn’t closed above 87 cents since the bid from Sycamore was announced on the same day as the company cut its earnings forecast by as much as 49 percent.
A day later Craig White, chief financial officer since 2005, left the company. His replacement, Peter Myers, was announced Jan. 11 alongside a restructuring of Billabong’s management units.
TPG International LLC, the private equity group run by David Bonderman, made two separate approaches for Billabong last year. Another unnamed bidder that people familiar with the matter identified as Bain Capital carried out due diligence on a A$1.45 bid matching TPG’s second offer, before walking away in September.
Romney founded the private equity firm, which has regularly traded staff members with Bain & Co. without having any formal association.
“When such a brand name sells at such distressed valuations the opportunity is great to turn that around,” Albert Saporta, an analyst at Makor Capital Ltd. who rates the stock a buy, said by phone. “Billabong is a great brand name. The fact that the company is not going very well right now is probably due to bad management.”
The A$1.10 offer price values Billabong at less than 14 percent of its 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 were to offer it.
Still, it prices Billabong’s debt and equity 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, including VF Corp. (VFC:US)’s $1.97 billion 2011 deal to acquire Timberland Co., according to data compiled by Bloomberg.
Billabong’s board will spend six weeks evaluating the latest offer and the one from Sycamore, the company said in its statement yesterday.
Greensboro, North Carolina-based VF Corp. has brands including Wrangler and Lee jeans, Reef surfwear, North Face outdoor clothing, and Vans skate shoes.
Altamont’s retail investments include High Wycombe, U.K.- based fabric designer Robert Allen Group and Taco Bell franchisee Tacala LLC, according to its website.
Sycamore sources clothing for Victoria’s Secret owner Limited Brands Inc. through a 51 percent stake in Mast Global Fashions and bought women’s clothing retailer Talbots Inc. for $369 million in June. Bank of America’s Merrill Lynch & Co. division will provide debt finance for its bid.
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