Billabong reduced to a ripple
Billabong today anounced that it had begun exclusive talks with one of its takeover bidders, ex-head of its North American division, Paul Naude, and his backers, Sycamore Partners. The move is a sign that the torturous and tedious Billabong saga is finally drawing to a close. The deal, if it holds, will see Naude acquire the beleaguered company for $0.60 a share valuing Billabong at just $287 million, a paltry sum for a once-mighty company worth $5 billion only five years ago.
It's been a tumultuous twelve months for Billabong. After its infamous retail expansion plan went awry Billabong have rolled from disaster to disaster with a series of profit downgrades interspersed by a fire sale of one of its most profitable labels and a desperate capital raising measure. All the while their shares kept tumbling, last month dipping to a then-record low of $0.63 and forcing the company into a temporary trading halt.
In just over twelve months Billabong received six takeover offers. The first was last February when TPG Capital made two takeover proposals. TPG offered $3.30 a share yet Billabong founder Gordon Merchant, who owns 15% of the company's shares, rejected the offer, famously stating that he wouldn't accept anything under $4 a share.
Shaken by the threat of takeover Billabong embarked on a major restructure. Newly minted Chief Executive, Laura Inman, announced the closure of 150 stores and partial sale of Nixon watches. The Nixon deal netted Billabong US$285 million which they used to reduce debt. Billabong shares began to rally.
The celebration was short. By June their debt was again ballooning and Billabong was at risk of breaching its bank obligations. This time it appealed to its shareholders to buy new shares at a deeply discounted price in order to raise $225 million.
In late August, Inman presented her four-year plan to allay Billabong's slump and return to positive sales growth and increase its earnings. The plan included a range of measures with a key focus on simplifying the business – Billabong had 25,000 clothing styles, each in various sizes and colours - while improving its supply chain.
In September, six months after they last showed interest, TPG were again bidding for ownership with an offer of $1.45 a share. This time they had competition from another private equity group, Bain Capital. Within weeks Bain Capital had been frightened off by what they found in due diligence. TPG lasted three weeks longer and exited talks in October. Speculation surrounding the bids caused the share price to slide further.
In late December, Billabong had a surprise suitor in Paul Naude. The long-time Billabong employee took leave from his position as director and executive to work on the bid with the backing of Sycamore Partners. They were offering a reported $1.10 a share.
By mid-January a bidding war had begun with VF Corp, backed by Altamont Capital Partners, also bidding on Billabong. While the two parties were conducting due diligence Billabong revealed two downgrades to their full-year earnings and the takeover process appeared to falter. Rumours of bids as low as $0.50 a share began to emerge.
Today's announcement that Billabong is entering exclusive talks with Naude ends those rumours yet the reported sale price of $0.60 a share still sets a record low transaction for the company. It's shaping up as an ignoble end to Billabong's publicly traded presence. If they are to take anything positive from the sale it's that a Naude/Sycamore takeover will spare them the opprobrium of a dissection and sell off.
Unlike VF Corp, who, if successful with their bid, would've split the company selling its subsidiaries whilst retaining only the Billabong label, Naude intends to preserve the current company structure. It is likely, however, that Billabong will now move to the United States as Sycamore Partners are based in New York while Naude lives in Califonia. The new owners will want the company nearby as it undergoes a significant and costly transformation.
How that transformation affects the wider surf industry remains to be seen. With a surfer in charge there's a good chance the current marketing status quo of sponsored surfers and licensed contests will remain in place. Yet the degree of Billabong's involvement in surfing will almost certainly be curtailed as Naude and Sycamore Partners reduce their cost base.
Since late 2011 Swellnet has covered this story with multiple articles all of which received considered and insightful comments. Those articles (with comments attached) are: Billabong: The Headline act in need of support Billabong: The Hunter Getting Hunted Billabong Recovery begins with discounted shares