Blog: New Billabong bid signals major step down for founder

Petah Marian | 10 April 2013

The news yesterday that Billabong has entered exclusive talks with a consortium led by former Americas boss Paul Naude after the bid was cut by 45% was lost in the frenzy around the the news that JC Penney's Ron Johnson has been dismissed from the ailing retailer.

The decision to enter an agreement is a significant step down for the Australian surfwear brand. When private equity first started sniffing around the brand, with TPG Capital, offering AUD3.30 a share early last year, founder Gordon Merchant was heard to declare that he wouldn't sell the business for AUD1bn.

The current bid or AUD0.60 per share values the entire company at AUD287m, significantly down on the AUD1.10 it and VF Corp put in when they began due diligence.

According to local press reports, at the company's peak in 2007, Merchant's stake in the company was worth close to AUD1bn, but is now worth about AUD40m.

The company has had a difficult year or so, issuing three profit warnings and receiving four bids, none of which progressed beyond due diligence.

Industry watchers have repeatedly expressed concerns as to why the bidders have walked away.

UBS analyst Ben Gilbert said early this year that the "lack of commentary as to why discussions ceased has not only fuelled concerns over the severity of the issues already known to investors, but also given rise to fears over issues not yet appreciated by the market".

Indeed, PVH faced a similar surprise when it completed the acquisition of Warnaco, leading it to downgrade its full-year earnings forecasts after discovering that the company would require more investment than initially expected.

Yet, this latest bid by company insider Naude means that the group has a strong understanding of the issues facing the brand there are unlikely to be any further surprises for its potential buyers. Here's hoping Billabong can reach a new deal before any more bad news gets out.

 


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