Billabong suspends trading amid reports of TPG bid
Australian surf-wear manufacturer Billabong International has suspended trading amid reports that TPG Capital has tabled a buyout offer for the company. The move comes as Billabong looks for ways to manage a A$600 million debt pile, with net profit expected to fall by 50% in 2012 to around A$64 million.
Billabong, which was due to release its interim results on Friday, said in a stock exchange filing that trading would be halted pending a company announcement. According to The Australian Financial Review, the company has received a A$766 million ($821 million) cash offer from a private equity firm, believed to be TPG Capital.
Priced at A$3 per share, the bid represents a premium of about 70% on Billabong's last close of A$1.79. The company's stock has fallen 78% in the last 12 months compared with a 14% decline in the S&P/ASX 200 Index.
In December, Billabong appointed Goldman Sachs to conduct a capital structure review. Analysts estimate the company needs to raise at least A$250 million to stabilize its balance sheet through a combination of a dividend cut, disposals, a rights issue and the introduction of third-party strategic investment. Billabong's largest shareholder is company founder Gordon Merchant.
If TPG does acquire the company, it would be the private equity firm's first purchase of a retail business in Australia since Myer. TPG invested in the department store chain in 2006, exiting its stake for A$1.5 billion through an IPO three years later.
Speaking at the AVCJ Forum last year, Ben Gray, TPG managing partner and group head of Australia, Japan, Korea and Southeast Asia, said the investment generated a 6x return - 4.5x from operational involvement, 0.5x from debt payouts and 1x from a property deal.
Private equity players are targeting leading names in Australia's retail sector, which has struggled recently. Pacific Equity Partners is currently engaged in negotiations with Spotless, while KKR launched an unsolicited takeover bid for Pacific Brands.
Billabong's situation is slightly different - 70% of its sales are made overseas and underperformance is blamed on weak consumer sentiment in the US and Europe, competition from other retailers and the fading popularity of the surfer fashion look.
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