Billabong Bidders Said To Seek Deal Less Than Half Initial Offer

SYDNEY, Australia — Private equity bidders for Billabong International Ltd. are seeking to buy Australia's largest surf- wear company for as little as 50 Australian cents a share, two people with knowledge of the matter said. Billabong is seeking a higher offer and talks are continuing with the groups led by Altamont Capital Partners and Sycamore Partners Management, said the people, asking not to be identified as the talks are private. No offer at that price has been made, a third person said, also asking not to be named.

Billabong today suspended its shares from trade to continue talks, giving no timetable for how long that would take. A deal at 50 cents a share would come in less than half the groups’ initial A$1.10 offers and value the owner of the DaKine and RVCA brands at A$239 million ($250 million), about 77 percent below the level that founder Gordon Merchant said last year he’d reject if TPG Capital were to offer it.

“We have no comment in regards to the discussions,” Chris Fogarty, a spokesman for the Gold Coast, Australia-based company, said by phone. “These are confidential negotiations.”

Michael Freitag, a New York-based spokesman for Sycamore who works for Joele Frank, Wilkinson Brimmer Katcher and Christina Stenson, a spokeswoman for Altamont with Brunswick Group LLP, declined to comment.

Billabong’s shares have been halted since April 2, and last closed at 73 cents, a 34 percent discount to provisional bids of A$1.10 a share which Sycamore and Altamont respectively made in December and January.

Three takeover bids have already been rejected or canceled since the start of 2012 and the company posted a record loss Feb. 22 as it wrote down brands and breached terms on its debt.

Billabong’s board has spent about 28 weeks since February 2012 dealing with takeover approaches, and laid out A$5.8 million in the six months through December on fees to investment banks and due diligence costs associated with the process. That’s more than it spent writing down inventory and funding bad debts during the period.

Merchant cut Billabong’s first board-shorts on his kitchen table in 1973 and sold them to Gold Coast surf shops with his then partner Rena, according to the company’s website. A former surfboard-shaper and keen surfer, Merchant said in February 2012 that he wouldn’t support an offer as high as A$4 a share from TPG, the private equity group run by David Bonderman, according to a letter from his lawyers Minter Ellison attached to a regulatory statement at the time.

That would have valued the company at about A$1.02 billion, according to data compiled by Bloomberg. At its peak in May 2007, it was valued at A$3.84 billion.

Altamont has tied up with VF Corp., the largest U.S. clothing company and owner of the Timberland and Vans brands, while Sycamore is working with Paul Naude, Billabong’s Americas head who took leave from the company to pursue the bid.

VF Corp. is mainly interested in the Billabong brand, the Greensboro, North Carolina-based company said in a statement Jan. 14. The label, valued at A$252 million at full-year results last August, was written down to A$30 million at first-half results in February amid falling orders in Europe and Australia.

A 50 cents-a-share offer would value the company at barely more than the A$225 million it raised selling new stock to shareholders last year. If bids are withdrawn, the company may need to raise capital a second time, according to UBS AG and Credit Suisse Group AG. The company will post 80 percent of its assets and 85 percent of its earnings as security to its lenders after writedowns to its brands put it in breach of terms on its debt, Billabong said on Feb. 22, announcing its half-year results.

“Equity value is zero” if the company is unable to cut costs by 2015, Credit Suisse analyst Grant Saligari wrote in a March 20 note to clients. “There are several problem assets and legacy issues, which are likely to be costly.”

Billabong was the worst performer in Australia’s benchmark S&P/ASX 200 index (AS51) over the two-year period through December and has lost 68 percent of its market value over the past 12 months. Still, discretionary consumer companies have been the best performers in Australia’s benchmark index since the start of the year, as investors bet that interest rates at a half-century low will stoke spending.

Australian retail sales rose four times faster than economists forecast in February, climbing 1.3 percent to A$21.95 billion from a month earlier, the Bureau of Statistics said today. A measure of local consumer confidence, which returned just two positive readings in the 12 months through October, hasn’t slipped into negative territory since.

Billabong’s decline has been “largely market driven”, UBS’s Ben Gilbert wrote in a note to clients dated March 25. “There is clear scope to improve the performance of the business over the medium term.”

TPG made two separate approaches for Billabong last year. It made a series of bids valued up to A$3.30 a share in February and returned in July with a A$1.45-a-share provisional offer, which it dropped in October. Another unnamed bidder that people familiar with the matter identified as Bain Capital also carried out due diligence on a A$1.45 bid before walking away in September.

By: David Fickling; Editors: Ed Johnson, Mo Hadi