TPG Withdraws A$694 Million Billabong Takeover Bid as Talks End

TPG International LLC scrapped a A$694 million ($713 million) bid for Billabong International Ltd. (BBG), sending the surfwear maker’s shares to a record low as it was left without a suitor.

Billabong fell 17 percent to a record low after the Gold Coast, Australia-based company said talks had ended. TPG, run by David Bonderman, made a conditional bid of A$1.45 a share on July 24, five months after a A$3.30-a-share offer was rejected. A second private-equity firm walked away last month.

Slumping global demand has driven the company to its first annual loss since listing in 2000, amid plans to close about a fifth of the stores it had as of June 2011. Taking Billabong private offered the best chance to turn the business around and the stock may now decline further, said Tony Wilson, an analyst at Evans & Partners Pty. with a sell rating on the stock.

“I’m not prepared to touch this thing. The risks are through the roof,” Wilson said by telephone from Melbourne. “The fact that TPG have walked away -- does that mean they can’t see any equity value in the structure?”

The company’s shares closed at 83.5 Australian cents in Sydney, the lowest close since its 2000 initial public offering and 42 percent below TPG’s indicative offer.

TPG had earlier “expressed concerns in relation to some issues” as it studied the surfwear company’s financial data, Billabong said Oct. 5. Launa Inman, Billabong’s chief executive officer, declined to say what those concerns were or the reasons for the buyout group’s withdrawal.

“It really was their concerns,” she said on a media call after the announcement. “I have to repeat: it wasn’t our concerns.”

Brand Writedown

The company posted a A$276 million full-year net loss in August, its first since listing. Billabong also wrote off 42 percent of the value of its namesake label as a consumer slowdown forced it to sell inventory at a loss and pay penalties to close stores before leases expired.

Billabong had 634 stores in Australia, Europe and the Americas at the end of June, having shut 58 during the previous 12 months. A further 82 are slated to close this year, the company said.

“It’s a very complex business,” Sondal Bensan, an analyst at BT Investment Management Ltd. (BTT) in Sydney, said by telephone before the announcement. “You can’t just turn up and lift the margins. There’s a whole portfolio of brands and a lot of them are in decline.”

Earlier Bid

A second buyout firm, which Billabong didn’t identify, walked away last month, the company said at the time. Boston- based Bain Capital Partners LLC made the competing offer, people familiar with the matter said Sept. 6.

Inman, a former managing director of Wesfarmers Ltd. (WES)’s Target discount department store chain, was appointed CEO in May to turn around the company’s performance. That process continues amid “challenging” trading conditions, Billabong said in a statement today.

“What we need to do is go forward and transform this business,” Inman said on the call. “As we are today, we are on track to deliver it.”

She declined to comment on the board’s view of TPG’s offer or whether other parties were looking at the company.

“What I can say is that the board is united in what we are doing and are very supportive of the transformation strategy,” she said.

Deutsche Bank AG, which had a share price forecast of A$1.10 for the stock on June 28 before adjusting it to align with TPG’s A$1.45 offer, cut its 12-month estimate to 85 Australian cents after the announcement.

Capital Raising

Billabong in February rejected an offer of A$3.30 a share from TPG. Founder and largest shareholder Gordon Merchant, together with director Colette Paull, said they wouldn’t consider a bid of less than A$4 a share. Billabong has since increased its issued capital by 86 percent after it raised A$225 million selling new stock at a discount to pay debt.

Merchant, a former surfboard-shaper, started stitching Billabong’s clothes in his kitchen in 1973, according to the company’s website.

TPG, based in Forth Worth, Texas, sold its stake in Australian retailer Myer Holdings Ltd. (MYR) in a 2009 initial public offering that raised A$2.1 billion, Australia’s biggest that year. TPG and Carlyle Group bought Australian hospital operator Healthscope Ltd. for A$2.7 billion, including debt, in 2010.

To contact the reporters on this story: David Fickling in Sydney at dfickling@bloomberg.net; Brett Foley in Melbourne at bfoley8@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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