Billabong Says TPG Has Concerns About Takeover

Billabong Drops on Report TPG May Quit Bid Process
A surfer wearing a Billabong International Ltd. wetsuit looks out towards the surf at Bells Beach in Torquay, Australia. Billabong 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. Photographer: Carla Gottgens/Bloomberg

Billabong International Ltd. closed 27 percent below a takeover offer from TPG International LLC after the surfwear maker said the buyout firm had concerns about its A$694 million ($710 million) bid.

TPG and its advisers had “expressed concerns in relation to some issues” and discussions on the sale process continue, Gold Coast, Australia-based Billabong said in a regulatory statement yesterday, without saying what the issues were.

Billabong fell 1.4 percent to A$1.06 at the close in Sydney, 39 cents below TPG’s A$1.45 conditional offer price. The stock was halted yesterday after dropping 18 percent on a report in the Australian Financial Review that TPG was considering withdrawing its offer for the company.

“You look at Billabong and it’s a mess,” Sondal Bensan, an analyst at BT Investment Management Ltd., said by phone from Sydney. “The retail deals that private equity have done well have been clean businesses. Billabong is very complex, it’s got structural issues and it’s not easy to turn around.”

Chris Fogarty, a spokesman for Billabong, and Sue Cato, a spokeswoman for TPG’s external media adviser Cato Counsel, declined to comment. A message left at the office of Simon Harle, a Melbourne-based executive director for TPG, wasn’t returned.

Buyout Target

Billabong became a target for buyout groups as debt and slumping earnings caused a drop in its share price.

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

TPG, which made its offer July 25, has been examining the company’s financial records after signing a confidentiality agreement.

Billabong in August 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.

The stock has lost more than 90 percent of its value from a peak in May 2007. Launa Inman, a former managing director of Wesfarmers Ltd.’s Target discount department store chain, was appointed CEO on May 9 to turn around the company’s performance.

“There remains a lot of hard work ahead of us to return a strong group to its former position,” she told an investor briefing Aug. 27.

Offer Rejected

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

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.

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

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

(Company corrects reference to staff cuts in final paragraph of story published Oct. 5.)
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