Billabong Receives New Takeover Bid, Cuts Guidance Again
Billabong received yet another takeover bid, not surprisingly lower than past ones and particularly not surprisingly given that the surfwear giant also announced its third profit warning this year. Profits for its fiscal year could land as much as 44 percent after charges below its previous forecast.
Besides Billabong, the Australian company’s brands include: Element, Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Xcel, Tigerlily, Sector 9, DaKine and RVCA. It also owns the West 49 action sports chain in Canada.
The new bid of A$1.10, valued at A$527 million ($554 million), comes from a consortium led by Paul Naude, a board director and former head of Billabongs Americas division, and New York-based private equity firm Sycamore Partners. In February, Billabong rejected a A$3.30 bid by TPG Capital TPG.UL as too low. Subsequent offers of A$1.45 from TPG and Bain Capital were withdrawn after due diligence.
Billabongs board indicated it will consider the conditional bid but hasnt decided whether to grant his group access to conduct due diligence. The offer is subject to due diligence, regulatory approval and completion of financing from a group led by Bank of America Corp.s Merrill Lynch unit.
Naude, a former pro surfer, stood aside from his role as president of Billabong’s Americas operations in mid-November for six weeks to look at putting together a buyout proposal.
The company has replaced its CEO and chairman and seen three board members step down over the past year as it racked up its first annual loss since it first went public in 2000.
Last week, Billabong cut its forecast for full-year underlying earnings to a range of A$85-A$92 million before interest, tax, depreciation and amortization, excluding one-off items of A$29 million. That was down from an August forecast of A$100 million to A$110 million.
In Europe, Billabong said it saw a significant increase in cancellations of orders for winter season product, especially in southern European territories, and also lower than anticipated gross margins given the challenging trading conditions. Sales in its own stores also came in weaker than expected, and its summer order backlog also is lower than forecast.
In the Americas, its West 49 retail business in Canada achieved positive comparable store growth of 3.1 percent in September but has since deteriorated with high single digit percentage declines in October and November. The trend is expected to continue through the second half. Billabong said in its statement, West 49s experience is similar to that of many major North American apparel retailers with outerwear being a big driver of this recent under performance.
Billabong also said it is seeing weaker than previously forecast results for South America, in particular Brazil.
On the positive side, the company is seeing good wholesale results for Billabong and RVCA in the United States, although thats being offset by softness in orders for Dakine and Element and generally tough wholesale trading conditions in Canada.
Given the significant gap between the market capitalization of the company and its shareholders funds, a review of the carrying values of the companys assets (especially intangibles and goodwill) and its onerous contracts will be conducted at the half-year as well as the companys operational performance at the time. The review may result in impairment and other charges being recorded.
Over much of the past three years it has been seeking to manage volatile and at times unprecedented trading conditions in all markets and has been the subject of several approaches, including Mr Naudes, said Billabong Chairman Ian Pollard in a statement. Under CEO Launa Inman, the management team is undertaking a series of actions which it can control. The board supports the transformation strategy, which has already delivered some early improvements in operations and in managing costs. However, it will continue to assess the current indicative, non-binding and conditional proposal as well as other matters that may be outside of its control as it seeks to restore the fortunes of the company.”
Craig White, Billabongs CFO since 2005, also left the company last week but no reason was given. The CFO of its Americas unit Peter Bryant will handle Whites responsibilities while the company searches for a replacement.
