Billabong appears to like the new model at Quiksilver after that company acquired the DC Shoes brand. Billabong International Ltd. has moved to acquire the four-year-old Kustom surf shoe brand as part of the purchase of Palmers Surf Company, which markets surf wax and surf accessories.

The deal, valued to top out in the A$20 million to A$25 million range, including earn-outs, now gives Billabong a lifestyle footwear platform.

The price equates to an EBIT multiple of less than six times earnings on a historical basis. Billabong expects the acquisition to be accretive to current year earnings, but does not expect it to be “significant”.

“By the financial year 2005-06 we expect Palmers Surf to be contributing more than A$30 million in revenue, with margins expected to be in line with the Billabong group,” said Billabong CEO Derek O’Neill. “We have indicated in the past that footwear was a natural progression and this acquisition gives us a solid foundation on which we can build,” he said.

O’Neill said Kustom was a surf shoe brand, rather than a skate shoe business that had crossed over into surf.
“Skate shoes are much more technical products and opportunities remain in that sector,” he said. “Kustom will be targeted solely at surfers and will therefore be more lifestyle based. It is a fresh, youth-oriented brand and this is reflected in its styling and marketing which will continue to evolve under Billabong’s ownership.”
The acquisition includes the retention of Palmers Surf founders and principals Al Cook and Glen Delaney.

The deal is expected to close in early October.

In other Billabong news, reports out of Australia indicate that O'Neill and the head of the company's U.S. operations, Paul Naude, both received large bonuses for the most recent fiscal year, which ended June 30.

According to the company’s annual report, the bonuses were based on Billabong’s 14% increase in profits. Naude received a bonus of A$754,752 lifting him to a total of nearly A$1.6 million for the year, while O'Neill's bonus of A$770,000 gave him a total pay package of A$1.4 million for fiscal 2004.

Shareholders will also be asked to vote on a new executive performance share plan under which shares will be placed in a trust, with directors to receive them once specific performance criteria for the company are met. Billabong will also get a new chairman next year after current chair Gary Pemberton steps down next year.

“It was always my intention to take more of a back seat, and (current chief executive) Derek O'Neill has been there for two years now, so I think it's the right time”, said Pemberton.