Billabong Slumps on Concern Bid May Be Cut After Rival Walks

Billabong Bidder Drops Out Leaving A$694 Million Sale to TPG
Billabong has become a target for buyout groups following a 38 percent fall in its share price in the past year as it cut earnings and sold new stock to reduce debt. Photographer: Ian Waldie/Bloomberg

Billabong International Ltd. shares slumped in Sydney trading on concern a A$694 million ($726 million) conditional offer from TPG International LLC may be reduced after a competing bidder walked away.

The stock fell to A$1.34, which is 7.6 percent below TPG’s conditional price of A$1.45 a share. The second bidder, which wasn’t named, withdrew after earlier indicating it would match TPG, Billabong said in a statement today.

“Those guys have to work out what price they’re prepared to pay. From my perspective it’s below A$1,” said Tony Wilson, an analyst at Evans & Partners in Melbourne with a ‘sell’ rating on the stock. “The board may have to settle for A$1.45 if that’s what TPG wants to pay.”

The second bidder, which like TPG signed a confidentiality agreement to gain access to private financial data, is walking away as Billabong fires workers, closes stores and sells assets amid record losses. Boston-based Bain Capital LLC made the competing offer, people familiar with the matter said Sept. 6.

Billabong shares slumped 7.3 percent at the close trading in Sydney, the biggest decline since July 9.

The Gold Coast, Australia-based surfwear maker became a target for buyout groups following a slump in its share price triggered by a fall in earnings and the need to repay debt.

Billabong last month posted a A$276 million net loss, its first since listing in 2000, and 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.

‘No Guarantee’

While the process with TPG continues, there is no guarantee that a transaction will be agreed or that the board will recommend any proposal, Billabong said in its statement today.

The company this month said a A$1.45-a-share bid doesn’t reflect “the fundamental value of Billabong in the context of a change of control transaction.”

TPG, the buyout firm run by David Bonderman, started due diligence on Billabong in late August, according to the Australian company.

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 repay debt.

Due Diligence

Billabong said July 24 that TPG returned with a A$1.45-a-share indicative offer, adding three days later that it “may be refined” after the group completed due diligence. Colonial First State Investment Ltd. and Perennial Value Management Ltd. agreed to sell about 12.5 percent of Billabong’s issued capital to Fort Worth, Texas-based TPG, Billabong said in that statement.

Australian clothing producers have become a target for buyout groups as the weaker retail spending cuts valuations.

Pacific Brands Ltd., which licenses the Everlast label, received an unsuccessful approach from KKR & Co. in January. Rip Curl Group Pty., a closely-held board-sports brand, is exploring a sale for as much as A$500 million, a person with direct knowledge of the matter said Sept. 17.

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