It's getting to the pointy end of the competition at the Australian Open of Surfing, sponsored by Billabong. Likewise, things are getting awfully prickly for Billabong in the marketplace.
Trading in Billabong was halted on the ASX yesterday as talk of an impending takeover spread. Since their grandiose retail expansion plan failed Billabong has been a shot duck, at the mercy of market whims and floundering within sight of larger, cashed-up predators. A takeover bid has long been suspected.
Texas Pacific Group (TPG) were the rumoured architect of the takeover bid and this was confirmed today. At $3 a share the takeover would've been worth $765 million. The typical pattern for private equity companies such as TPG is to buy businesses at depressed levels, rip the costs out, add some sales and then sell them off through a re-float on the stockmarket a few years later.
If TPG were successful it would be assumed that the branding and corporate staregy of Billabong would change markedly. Free of shareholder interests and obligations to the surf industry their strategy would be based solely upon short-term profitmaking. If such a takeover were to happen it's highly likely that events such as the Billabong Pro Tahiti and sponsorship of the current Australian Open of Surfing would be shed to reduce costs. Individual sponsorships would be put in jeopardy also.
Although their situation is grim Billabong had a few methods at their disposal to improve the balance sheets and counter a takeover. The most obvious being to sell some or all of the numerous brands they own, such as Nixon, RVCA, Kustom, Element and Von Zipper. Each brand has a carefully crafted cachet of cool and would do well in a sale.
The latest news is that this is the strategy Billabong have used. To stave off the purported takeover Billabong has sold part of it's interest in Nixon watches for $432 million. It's also announced other cost-cutting measures such as store closures. This move will result in the loss of 400 jobs, including 80 in Australia. All up, the company plans to close between 100-150 loss-making or under-performing stores.
STOP PRESS: Friday's takeover bid of Billabong by Texas Pacific Group, which ended with Billabong selling part of Nixon watches, isn't the end of the story. TPG's has formalised its bid and it's currently being assessed by Billabong. Read more here.
The above 'here' links to...
Then this from 3 days ago (Feb 28th)
BILLABONG International has rejected a third takeover bid from private equity giant TPG Capital as major shareholder and founder Gordon Merchant digs in his heels.
The Billabong board on Tuesday turned down TPG's increased offer of $3.30 per share while Mr Merchant and fellow board member Colette Paull indicated that any offer of $4 a share or below would not be enough.
The announcement initially sent Billabong shares five per cent lower following a steady rise in recent weeks amid speculation that a fresh takeover offer could trigger more bids for the troubled retailer.
TPG is eager to carry out due diligence on the surfwear retailer after Billabong said it would undertake a major restructure plan that includes selling a large stake of its Nixon brand.
However, Mr Merchant and Ms Paull said they did not support Billabong taking any steps to "assist or facilitate a proposal by TPG Capital even if the price TPG offered was $4.00 per share".
They consider $4 would still represent a "discount on the true value of Billabong shares".
Mr Merchant and Ms Paull, in conjunction with other major shareholders, could block a takeover bid.
In a statement on Tuesday, the Billabong board said it had considered the revised price and unanimously decided it did not reflect the fundamental value of the company.
"As a result, discussions between the two parties have ceased," Billabong said.
However, Billabong said the board was prepared to engage with TPG or any other party that made a proposal which was in the best interest of the company and its shareholders.
It is the third time Billabong has rejected a takeover offer from TPG following an unsuccessful bid to buy all of Billabong's shares for $3 each last week.
At 15.00 (AEDT) on Tuesday Billabong shares were 12 cents, or four per cent, lower at $2.93.
Deutsche Bank analyst Michael Simotas said Mr Merchant's expectations may be too high.
"The way the letter reads is if someone came through with a bid of $4 or slightly above, Mr Merchant may well still not be interested," Mr Simotas said.
"Given TPG upped its bid and the board has unanimously rejected that, I think it does suggest that if anyone else was considering a bid they probably do need to come in significantly higher to engage."
Read more: http://www.news.com.au/business/billabo ... z1ny7veVUz