Billabong International Ltd., Australia’s largest surf-wear maker, plans to raise A$225 million ($229 million) selling new stock at a discount to repay debt after cutting its earnings target.
Investors can buy six shares for every seven they already own at A$1.02 apiece, 44 percent less than yesterday’s closing price, Gold Coast, Australia-based Billabong said in a filing today. Earnings in the 12 months ended June will be as much as 17 percent less the previous target, it said.
The maker of Kustom shoes and Billabong clothing, which has lost 89 percent of its market value in the past five years, is raising cash four months after spurning an approach from TPG Capital and selling control of its Nixon watches and accessories unit to cut debt. The buyout firm indicated it was prepared to pay as much as A$3.30 a share, the company said in February.
“Private equity pulled the plug and the company now needs to take more pain by raising equity from already struggling shareholders,” said Peter Esho, the Sydney-based chief market analyst at City Index Ltd. “Knocking back private equity’s A$3-a-share takeover offer and then raising equity at A$1.02 will no doubt see a lot of criticism from shareholders.”
Billabong last month named Launa Inman as chief executive officer to replace Derek O’Neill as it seeks to turn around falling sales and earnings. Billabong plans to close as many as 150 of its 677 retail outlets and cut 400 jobs. As of today, 45 shops have been shut.
The equity raising will help cut net debt as on June 30 to about A$100 million from the previous forecast of A$300 million to A$350 million. Billabong has also renegotiated its banking covenants.
The company’s shares closed yesterday at A$1.83 and have slumped 70 percent in the past year. The stock was halted on the Australian Securities Exchange and trading will resume on June
Billabong considered selling the rest of Nixon before choosing the capital raising, Inman told reporters on a conference call today.
Full-year earnings before interest, tax, depreciation and amortization will be as low as A$130 million in the year ending this month, down from its previous target of A$157 million, Billabong said.
Billabong doesn’t expect to pay dividends for the second half of the 12 months ending June 30 and the first half of fiscal 2013, according to the statement. “The dividend policy will be reviewed thereafter,” it said.
“The company has generally continued to face challenging trading conditions, in particular in Europe, Australia and Canada,” it said in the statement. “The board expects the current softness in trading conditions to continue.”
A letter to the board from lawyers representing founder and biggest shareholder Gordon Merchant as well as fellow director Colette Paull said both would oppose steps to let TPG conduct due diligence even with an offer of A$4 a share, the retailer said in February.
Merchant took up 85 percent of his rights as part of the capital raising, or A$30 million worth of shares, Billabong said today. The company will get a one-time gain of between A$200 million and A$225 million on the partial sale of Nixon, the company said.
“It’s hard to justify the sale of one of the best units in the group and then tap shareholders for equity only a few months later,” City Index’s Esho said.