WWD.com/business-news/mergers-acquisitions/billabong-takeover-talk-re-erupts-6003260/
government-trade
government-trade

Billabong Takeover Talk Reignites

There’s speculation that private equity firms such as TPG Capital might start to eye the surf brand, as well as strategic players such as PPR.

Billabong International Ltd. is once again the focus of takeover speculation, attracting possibly the attention of Nike and TPG Capital.

This story first appeared in the June 28, 2012 issue of WWD.  Subscribe Today.

Officials at TPG in the U.S. and Australia declined comment, and their counterpart in Australia could not be reached for comment by press time. Nike Inc. officials also did not return a request for comment.

There’s speculation that other private equity firms might start to eye the surf brand, as well as some strategic players such as PPR. The PPR speculation stems from its purchase last year of skate and snowboarding retail chain Volcom for $607.5 million, which competes in the same market as Billabong. In addition, PPR also owns 71 percent of the German sports brand Puma.

Troubles began surfacing for Billabong last week when it issued a profit warning for the year ending June 30. The company said it expects earnings to come in at 130 million to 135 million Australian dollars, or $130.5 million to $135.5 million. That compares with an earlier forecast of 157 million Australian dollars, or $158 million. All conversions to U.S. dollars are at current exchange.

Billabong last week also sold 221 million new shares and raised 225 million Australian dollars, or $225.81 million, but at a discounted price as some institutional investors began questioning the firm’s focus. By the time trading resumed on Monday, the Gold Coast, Queensland-based surfwear firm’s share price dropped as much as 50 percent to a record low of 92.5 Australian cents or 93 cents. The drop wiped out more than 200 million Australian dollars, or about $200 million, of the company’s capitalization and ignited talk that the company could become a takeover target.

The share price on Tuesday recovered by more than 5 percent after founder and non-executive director Gordon Merchant, who owns 15.6 percent of the company, told one Australian newspaper that he would consider buyout offers.

On Wednesday, shares closed nearly flat at 1.03 Australian dollars, or $1.03.

In February, Billabong rejected three takeover offers from private equity group TPG Capital, the last for 3.30 Australian dollars, or $3.53 at the exchange rates at that time, per share. The would value the company at around 817 million Australian dollars, or $765 million at February exchange rates. At the time, Merchant was said to have wanted at least 4 Australian dollars.

With a possible change of heart by Merchant, there’s renewed rumblings that TPG might return to the table with a sweetened offer.

“I’m sure TPG has done all the homework and due diligence on the business, and we wouldn’t be surprised if they weren’t reviewing the situation and coming back to make some kind of offer” said Morning Star analyst Tim Montague-Jones. “But I wouldn’t be surprised if a number of others were also interested in it, like the Nikes of this world. Billabong is an international brand.”

Billabong officials declined comment.

The company has been restructuring its business by cutting costs and closing stores. In February, the company sold 51 percent of its Nixon brand to U.S. private equity firm Trilantic Capital Partners and Nixon’s management for $285 million.