Billabong poised for takeover as share price tumbles

As of midday Tuesday, the stock had recovered 7.81% to A$1.03, but it is still down more than 82% on a one-year basis.

According to The Sydney Morning Herald, Billabong's founder and major shareholder Gordon Merchant now recognizes that some kind of rescue deal is inevitable. At least two industry players and several private equity firms are said to be considering a strategic investment or takeover of the company.

Institutional investors took up only 79% of their entitlements in the rights issue to receive six new shares for every seven existing shares. They expressed disappointment with Billabong's lack of direction and exasperation at the spate of shares sales in recent weeks, Reuters reported.

Shortly before the rights issue, Billabong downgraded its EBITDA expectation for 2012 to A$130-135 million from slightly above the analyst consensus of A$157 million, citing "the prolonged and ongoing deterioration in trading conditions." The rights issue was supposed to reduce net debt from A$325 million to around A$100 million.

TPG initially offered A$3 per share for Billabong but subsequently increased its offer to A$3.30. Merchant, having earlier said that he didn't want to engage with the private equity firm even if it offered A$4 per share, admitted in a regulatory filing announcing the termination of negotiations that he would be willing to listen to suitably attractive proposals.

The company responded to the takeover bid by saying it would close 150 stores and sell off part of one of its most profitable brands. It 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 is expected to generate proceeds of $285 million for Billabong.

Billabong has more than 700 stores worldwide and operates brands including Element, Von Zipper and Tigerlily, as well as Nixon. It has been struggling commercially due to deteriorating sales in Europe and Australia, intense competition and rising raw material costs.

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• Topics
• Buyouts
• Consumer
• Australasia
• Credit/Special Situations
• Australia
• Consumer
• buyout
• Distress
• TPG Capital