The parent of the Quiksilver, DC Shoes and Roxy, B0ardriders Inc., agreed to acquire rival Billabong International Ltd., creating combining two of the largest active sports brands worldwide.
Including the assumption of debt, the deal is valued at U.S. $315 million, a source told the Los Angeles Times.
On December 1, Boardriders Inc.made an offer to acquire the company and Billabong indicated that its board would evaluate the proposal. Boardriders, through its Los-Angeles-based controlling fund, Oaktree Capital Management, already owns 19 percent of Billabong. Oaktree is also one of Billabong’s two senior lenders.
According to a press release from Boardriders, the combination of Boardriders and Billabong will create the world’s leading action sports company with sales to over 7,000 wholesale customers in more than 110 countries, owned e-commerce capabilities in 35 countries, and over 630 retail stores in 28 countries. The combined company will include some of the most coveted brands in the industry as Billabong, RVCA, Element, VonZipper, and Xcel are added to the Boardriders family of brands.
The combined business will be highly diversified and will serve the global community of action sports enthusiasts with a full suite of innovative product lines and a range of community-building activities. Importantly, the strength created by the combination will also allow for deeper and more mutually beneficial partnerships with customers and suppliers, and enable additional investment in the brands and in the action sports industry overall.
Boardriders stated, “Under the ownership of funds managed by Oaktree Capital Management, L.P. (“Oaktree”), Boardriders has dramatically improved its operational and financial performance since its turnaround began in February, 2016. The company rationalized its distribution, right-sized its cost structure, rewired its product development platform, and invested in a range of growth-enhancing brand, marketing and e-commerce initiatives. The successful turnaround of the company and reconfiguration of the Boardriders platform has created the opportunity to bring the Billabong brands onto the same back-office operating platform to accelerate their growth as well. ”
Upon closing of the transaction, Dave Tanner, currently managing director at Oaktree and chief turnaround 0fficer for Boardriders, will become chief executive officer of Boardriders. Pierre Agnes, currently chief executive officer of Boardriders, will become president of Boardriders, remain a Board member, and lead a substantial portion of the integration of the two companies.
Tanner said: “The combination of these two leading action sports companies, which include a broad range of iconic brands with deep heritage in surf, snow and skate, is very exciting for all of us who share a passion for outdoor action sports. We are committed to preserving the autonomy, creativity, and unique cultures of all the brands while we leverage our best-in-class operating platform to accelerate the growth of the brands globally. We are excited to become one family with the Billabong team, and look forward to working together arm-in-arm to achieve the promise that this combination offers.”
Agnes added: “Creating one integrated global platform will enable the combined company to enhance its investments in product innovation and quality, digital marketing, consumer engagement, and e-commerce, which ultimately will benefit our consumers and strengthen the company and industry. With a larger and stronger platform, we see many exciting opportunities for our employees, customers, suppliers, and athletes. I am excited and honored to pass the leadership baton to Dave and to continue to partner with him to drive the next phase in the evolution of Boardriders.”
Additionally, now that the agreement has been signed, it is appropriate for Boardriders to discuss a potential future role with Neil Fiske, current CEO of the Billabong Group. “We have high regard for Neil and what he has accomplished over the years. I personally have valued his keen strategic thinking and leadership. I very much hope that he will join us for the next leg of this journey and continue his contribution to these great brands,” said Matt Wilson, Chairman of Boardriders and Managing Director and Co-Portfolio Manager at Oaktree.
The acquisition is subject to a number of customary closing conditions, including shareholder, court and regulatory approvals. The transaction is expected to close in the first half of 2018.
According to the release from Billabong, Billabong’s directors unanimously recommended that Billabong shareholders vote in favor of the “Scheme Implementation Deed,” in the absence of a superior proposal and subject to the independent expert concluding (and continuing to conclude) that the Scheme is in the best interests of Billabong shareholders.
The reasons for the Directors’ recommendation include the following:
- Attractive premium: The Scheme consideration of A$1.00 per Billabong share
represents an attractive premium of:
- 28 percent to Billabong’s closing price of $0.78 per share on 30 November 2017, being the day prior to the disclosure that Boardriders had approached Billabong with a proposal to acquire the company;
- o 52 percent to Billabong’s 1-month Volume Weighted Average Price (VWAP)
of $0.66 per share up to and including 30 November 2017;
- o 69 percent to Billabong’s 3-month VWAP of $0.59 per share up to and including 30 November 20172; and
- o 52 percent to Billabong’s 6-month VWAP of $0.66 per share up to and including 30 November 2017.2
- Attractive acquisition multiple: The Scheme Consideration of A$1.00 per share implies an EV/pro-forma FY17 earnings before interest tax depreciation and amortisation, excluding significant items (EBITDA) multiple of 7.4×3
and an EV/pro-forma FY17 EBIT multiple of 16.6×3, both of which are attractive and reflect the combination benefits that will flow to the new group.
- Certainty of value and avoidance of ongoing risks and uncertainties: In the absence of the Scheme, Billabong shareholders face ongoing risks and uncertainties associated with Billabong’s business. Under the Scheme, the 100 percent cash consideration provides shareholders with certainty of value and the opportunity to realise their investment for cash.
- Limited conditionality: The Scheme is subject to limited conditions and is not subject to financing or due diligence.
Commenting on the Scheme, Billabong Chairman, Ian Pollard, said:
“While Billabong has made significant operational progress in recent years, the Board is also mindful of the fact that, in the absence of the Scheme, Billabong shareholders face ongoing risks and uncertainties associated with the business. These include risks relating to the state of the global retail market as it affects both Billabong and its wholesale customers; the operations and project risks associated with the execution of Billabong’s strategy; and risks relating to the refinancing of its debt. In particular, the Board considers that it will become necessary for Billabong to materially reduce debt if it is to continue with its current strategy which, given the company’s existing high debt levels is expected to require asset sales or a dilutive equity raising. Having regard to these factors, and the fact that shareholders are being offered an attractive premium for their shares, the Board
believes this offer is in the best interests of shareholders.”
Billabong CEO, Neil Fiske, said: “Billabong’s brands’ great strength is their authenticity and heritage. I’m confident those qualities will not simply be protected but enhanced by a new organisation that will have the scale and financial security to continue to support and build them as we enter into a new and dynamic retail environment.”
Centerbridge Partners L.P., through a controlled entity (the Centerbridge Shareholder), currently holds approximately 19.2 percent of the shares in Billabong. The Centerbridge Shareholder intends to vote all Billabong shares held by it in favour of the Scheme, in the absence of a competing proposal which, in the sole opinion of the Centerbridge Shareholder, is a superior proposal, and subject to the independent expert concluding (and continuing to conclude) that the Scheme is in the best interests of Billabong shareholders.
Gordon Merchant, a Director of Billabong, who through his controlled entities holds approximately 12.8 percent of the shares in Billabong, has also stated that his intention is to vote in favour of the Scheme in the absence of a superior proposal and subject to the independent expert concluding (and continuing to conclude) that the Scheme is in the best interests of Billabong shareholders. The Centerbridge Shareholder and Gordon Merchant’s controlled entities together currently control approximately 39 percent of the shares eligible to vote on the Scheme.
Billabong also reaffirmed the guidance provided at its Annual General Meeting that it expects the Group’s FY18 EBITDA (excluding significant items) to exceed the prior year, and provides a trading update.
Retail conditions remain challenging in a number of markets, but the company’s results during the important holiday trading period were generally in line with, albeit at the lower end of, the company’s expectations. The Group continues to have a significant bias of second half earnings to the month of June in the Americas and trading in that month remains key to achieving the Group’s full year expectations. The company today confirms that it expects the Group’s FY18 EBITDA (excluding
significant items) to be in a range between last year’s EBITDA of $51.1 million and $54 million, subject to reasonable trading conditions and currency markets remaining relatively stable.
As previously noted, given the increasing proportion of earnings represented by the Americas and Europe, the earnings profile for FY18 is expected to be similar to FY17, with the first half EBITDA below the prior corresponding period and all the growth biased towards the second half.
Photo courtesy RVCA