TPG submits Billabong takeover bid despite initial rebuff
TPG Capital has made its A$765 million ($825 million) bid for Billabong regardless of the Australian surfwear company’s attempt to head off a takeover by announcing both the partial sale of one of its most profitable brands and plans to close 150 stores. Billabong’s stock has risen nearly 60% since TPG’s interest emerged late last week and is currently trading A$.85, although this is well down on the A$9 level reached in February 2011.
The company announced TPG's A$3 per share cash offer to the Australian Stock Exchange on Monday, adding that it didn't preclude the sale of the Nixon watch brand. Goldman Sachs and Allens Arthur Robinson are advising Billabong while Macquarie, Credit Suisse and Freehills are advising TPG.
Billabong said on Friday that net profit for the second half of 2011 was down 45% year-on-year to A$31 million, including a A$15 million impairment charge on its South African operations. It blamed the poor performance on deteriorating sales in Europe and Australia, intense competition and rising raw material costs.
The company has agreed to set up a joint venture with Trilantic Capital Partners to operate the Nixon brand. Each party will hold a 48.5% stake, with the venture's management team holding the remainder. The transaction - which values Nixon at $464 million, representing an EBITDA multiple of around 9.2x - will generate proceeds of $285 million for Billabong. As a result, the company's net debt will fall from A$525 million to A$259 million.
Analysts previously estimated 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, whose largest shareholder is company founder Gordon Merchant, has more than 700 stores worldwide and operates brands including Element, Von Zipper and Tigerlily, as well as Nixon. The decision to close some outlets came after Goldman Sachs conducted a review of Billabong's capital structure.
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.
Billabong is not the only company in Australia's struggling retail sector to be targeted by private equity. In January, KKR launched an unsolicited takeover bid for Pacific Brands.
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