Billabong International Limited has reached an agreement to acquire West 49 Inc., Canada's leading action sport retailer. The Australian-surf apparel giant plans to acquire West 49 for C$1.30 (U.S. $1.24) per share, for an enterprise value of approximately C$99.0 million ($94.3 million.)

West 49 has 138 primarily mall based stores in nine provinces

across Canada. Under the five banners of West 49, D-Tox, Off The Wall,
Amnesia/Arsenic. Brands within the Billabong group include Billabong, Element, Von
Zipper, Honolua Surf Company, Kustom, Palmers Surf, Nixon, Xcel,
Tigerlily, Sector 9 and DaKine.

According to a statement from Billabgon, the acquisition of West 49, one of Billabong's existing retail partners in Canada, is expected to be
EPS accretive in FY2011 and is an important step in Billabong's strategic evolution. The acquisition:

  • Increases the availability of Billabong's brands in the key action sports market of Canada
  • Provides the ability to increase wholesale throughput of Billabong's existing brands via an expanded retail network – currently across West 49's portfolio Billabong has a brand share of approximately 15%
  • Increases Billabong's participation in an important distribution channel including providing greater influence over the store environment and brand image presented to consumers
  • Provides the opportunity to expand on West 49's current platform to enhance premium action sports retailing in the Canadian market
  • Provides North American retail expertise and efficiencies for Billabong's expanded retail network
  • Enhances retail presence providing Billabong with faster feedback on consumer trends and the ability to test product
  • Provides increased branding opportunities, which in turn will drive demand
  • Broadens Billabong's retail portfolio to better target key Canadian demographics via West 49's banners.

Billabong the business targets the key Canadian tweens and teens demographics which spend a combined approximately C$2.5 billion per year on clothing, footwear and accessories.

The acquisition of West 49 will supplement Billabong's existing North American retail footprint, lifting today's company-owned store count from 90 to approximately 230 doors in this region and gives Billabong a global retail presence of approximately 510 company-owned stores.

The transaction is expected
to be effected by way of a plan of arrangement and is expected to close
in late August or early September 2010.

In its own statement, West 49 said the sale price of C$1.30 was well above the closing price on June 29, 2010 of C$0.55 per share, with the volume weighted average price of the common shares over the 20 trading days ended June 29, 2010 being C$0.54. The company has approximately 64 million common shares outstanding. Holders of the Company's preferred shares will also receive accrued and
unpaid dividends on their preferred shares.

The company said its board of directors, based on the unanimous recommendation of a special committee of independent directors, has unanimously recommended that security holders vote in favour of the transaction. The special committee made their recommendation with the benefit of input from its independent legal and financial advisors. National Bank Financial Inc., independent financial advisor to the special committee, has rendered an opinion to the special committee, subject to the assumptions and limitations described therein, that the consideration to be offered pursuant to the transaction is fair, from a financial point of view, to the Company's common shareholders.

“This transaction delivers a significant premium and an excellent liquidity opportunity to our shareholders that is unanimously supported by the company's board of directors,” said Lucio Di Clemente, Chairman of the special committee. “Furthermore, Billabong will strengthen the company's future growth prospects and provide new business opportunities to the benefit of both our customers and our employees.”

“This is a proud day not only for myself as founder of the company but for all of our employees who have contributed to the growth and success of the Company over the past 15 years,” said Sam Baio, President and Chief Executive Officer, West 49 Inc. “Becoming part of the global Billabong family will create new opportunities for our business and, just as importantly, new opportunities for our valued employees throughout the organization.”

West 49 was founded in 1995 by Baio and is headquartered in Burlington (near Toronto, Ontario).

The transaction is subject to the approval of the company's share holders at a special meeting anticipated to be held in August 2010. Completion of the transaction is also subject to certain other customary conditions.

Certain significant security holders together with the company's board of directors, who collectively hold approximately 56% of the outstanding common and preferred shares, have entered into lock-up agreements with Billabong pursuant to which they have committed to vote their securities in favour of this transaction, subject to certain terms and conditions.

The acquisition agreement entered into between the company and Billabong provides for, among other things, a non-solicitation covenant on the part of the Company, subject to customary “fiduciary out” provisions, which entitle the Company to consider and accept a superior proposal, subject to the right of Billabong to match the superior proposal and the payment to Billabong of a break-up fee of approximately C$2.5 million. The lock-up agreements automatically terminate if the acquisition agreement is terminated in certain circumstances, including in the event that the Company terminates the acquisition agreement to accept a superior proposal.