BILLABONG CLEARS TPG'S ACQUISITION WAVE

Written on the 20 April 2012

BILLABONG CLEARS TPG'S ACQUISITION WAVE

IT has been an exhilarating ride for the Gold Coast’s largest company after a spectacular takeover bid, freefalling share value, capital restructures and the closing of stores.

But Billabong’s decision to reject a renewed $3.30 per share take-over offer from US private equity giant TPG Capital has stood the company proud in the face of prevailing adversity.

When founder and major shareholder Gordon Merchant refused to budge on the offer, he sent a clear signal to swooping equity vultures everywhere – the company is worth much more than $841.8 million.

Billabong’s board is of the opinion the latest price does not reflect the company’s value. While Merchant is coy to put a price on the beloved brand he founded in a Burleigh Heads shed, there is of course ‘a price’. Merchant says anything under $4 a pop is a ‘discount’.

This time last year Billabong shares were around the $8 mark and were once boosting highs of $16 per unit. Shares free-fell 35 per cent to $1.75 in a Christmas jitter, but are now trading above $3.

However a 70 per cent decrease in half year profit from $57.2 million to $16.1 million forced the company to take a hard-line capital restructure approach.

Caught in a rough sea of underperforming bricks and mortar, it will partially sell-down ownership in US watchmaking company Nixon – a deal that will see around $264 million used to pay down debt.

The company entered an agreement with Trilantic Capital Partners (TCP) to establish a joint venture to accelerate the growth of the Nixon brand globally. Billabong and Trilantic will each hold around 48.5 per cent of Nixon and management will purchase the remaining 3 per cent stake.

Billabong CEO Derek O’Neill (pictured) says the transaction values Nixon at around US$464 million.

“Nixon has achieved strong growth since Billabong’s acquisition of the brand in 2006. Nixon is now well placed to grow deeper into accounts such as existing Nixon retailers, specialty watch and fashion retailers as well as select consumer electronics stores,” he says.

Billabong also announced it would close up to 150 stores and shed up to 400 fulltime jobs worldwide, including up to 80 in Australia.

Billabong has 677 company-owned stores and more than 11,000 wholesale doors. The company says, where possible, it will redeploy staff to other Billabong retail stores.

The restructure is expected to save up to $30 million in rent expenses with former Target managing director Launa Inman hired as a consultant advising the board and management on retail strategies.

Despite a slowdown in sales growth in Europe and a searing Aussie Dollar hurting its bottom line, Billabong managed global sales revenue of $847.2 million, up 1.5 per cent for the FY11-12 first half.

EBITDA was $74.1 million, down 21.7 per cent.


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