Australia’s Billabong Ends Takeover Talks, Looks To Refinance Instead

Source: Reuters

SYDNEY, Australia — Australian surfwear company Billabong International Ltd issued its third profit warning in six months as it revealed on Tuesday that potential takeover suitors had walked away from a deal.

Shares in the company plummeted as much as 58 percent after it said it was instead discussing refinancing options with the two consortiums – one led by its former U.S. boss Paul Naude and private equity firm Sycamore Partners, and the other by private equity firm Altamont Capital Partners and U.S. clothing group VF Corp.

“This is the worst fear that we had,” said IG markets strategist Evan Lucas. “They are now in the situation where they are going to have to be completely refinancing; that will obviously dilute their share price and dilute any form of debt that they’ve already got, which is the concern they’ve had the entire time.”

Billabong and its shareholders have endured a horrible year since rejecting a bid of A$3.50 a share, valuing the company at A$850 million ($825.39 million), from rival private equity firm TPG Capital Management in February 2012.

Billabong’s shares sank to an all-time low of A$0.19 on Tuesday morning. The stock has tumbled from a high of A$13.56 six years ago.

Plagued with high debt from an ill-timed expansion and struggling as its brands fell out of favour, the company has sold assets, closed stores, replaced its chief executive and embarked on a new strategy as a series of takeover proposals came and went.

Both the Sycamore and Altamont consortiums had put forward initial bids worth $544 million in December and January before conducting due diligence. Billabong then entered into exclusive talks with the Sycamore consortium about a reduced $300 million offer.

Billabong said on Tuesday it was now discussing “alternative refinancing and asset sale transactions” with the two consortiums and any proceeds would be used to repay its existing syndicated debt facilities in full.

“It’s our intention to conclude these discussions as soon as practically possible while aggressively reducing costs across all our global operations,” Billabong Chairman Ian Pollard said in a statement.

Profit downgrade

Billabong said that weaker trading in Australia and higher-than-expected start-up losses in its Surfstitch Europe business meant earnings before interest, tax, depreciation and amortisation (EBITDA) would be A$67 million to A$74 million.

It was the third time since December that Billabong had downgraded its earnings outlook from an August forecast of A$100 million to A$110 million.

“It certainly does not look like a great place to be and there’ll be a lot of questions in regards to how their reporting was done considering how bad the company looks,” said Lucas.

The company said Australian retail year-to-date sales on a comparable store basis were down 5.4 percent from the previous corresponding period, while gross profit dropped 2.3 percent.

Retail in the Americas was slightly ahead of plan for the half, but the company said it was considering the sale of its Canadian retail chain West 49.