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Billabong Founder Survives Revolt After Opposing Bid

Billabong Founder Survives Investor Revolt After Failed Bid
The Australian Shareholders Association opposed Merchant’s re-election after he rejected a bid of A$3.30 a share from TPG Capital in February and said he wouldn’t even consider an approach at A$4 a share. Photographer: Carla Gottgens/Bloomberg

Oct. 24 (Bloomberg) -- Billabong International Ltd. founder Gordon Merchant survived a push to dump him from the board for opposing a takeover bid that valued the surfwear maker’s shares at almost four times their current worth.

Merchant, 69, kept his board seat after 199 million proxy votes were cast in his favor, compared with 92 million against at the company’s annual general meeting in Australia’s Gold Coast today. Collette Paull, who sided with Merchant in rebuffing TPG Capital’s offer of as much as A$906 million ($934 million), was also reappointed.

The Australian Shareholders Association opposed Merchant’s re-election after he rejected a bid of A$3.30 a share from TPG Capital in February and said he wouldn’t even consider an approach at A$4 a share. The stock has plummeted to trade at 86 cents in Sydney today after TPG walked away from an A$1.45 bid this month after studying Billabong’s financial data.

“You and your fellow directors and senior management have been responsible for destroying their share values,” Bill Seymour, a representative from the Australian Shareholders Association who monitored the meeting, told Billabong Chairman Ted Kunkel.

Billabong rose 0.6 percent to 86 Australian cents as of the close of trade, after earlier dropping as much as 2.7 percent. The stock has slumped 39 percent this year, compared with an 11 percent gain for Australia’s benchmark S&P/ASX 200 index.

Capital Raising

Since the initial bid from TPG, the buyout firm run by David Bonderman, Billabong has sold new stock at a discount to repay debt, reported its first annual loss amid slumping demand, closed stores and fired workers.

The company has a market value of A$412 million and is worth less than the A$499 million in cash that it’s received from investors and asset sales this year.

It raised A$274 million selling 51.5 percent of its Nixon brand to buyout group Trilantic Capital Partners and managers, and shareholders provided an extra A$225 million in cash through the sale of new stock announced June 21.

Billabong has written 42 percent off the value of its namesake brand and plans to close about a fifth of the outlets it had as of June 2011 as incoming Chief Executive Officer Launa Inman works to turn around a business that lost A$276 million in the 12 months through June.

Billabong spent about A$133 million last year selling its stock at a loss to clear inventory and breaking store leases early, and wrote down A$479 million of brand value and goodwill from its 14 product lines as it span off Nixon and focused on developing the Element, RVCA and DaKine lines.

Board-Shorts Maker

Merchant, a surfer and surfboard shaper, cut the company’s first board-shorts in 1973 on his kitchen table and sold them to Gold Coast surf shops with his then partner Rena, according to the company’s website. He owns about 70 million shares, or 14.6 percent of Billabong, according to the company’s annual report.

“While I feel that I can add to the value of the company I would like to be a part of it,” Merchant said in an interview after the meeting.“The day I feel like I can’t then I will probably move on.”

Through an initial public offering in 2000 and the acquisition of a portfolio of additional brands, the company’s founder has remained central to its identity, said Phil Jarratt, author of the book “Salts and Suits,” a history of the rise of the surfwear industry.

“He remains the biggest single influence over the way the company’s gone the last few years,” he said. “You can’t get rid of Gordon.”

TPG’s Approaches

Merchant and Paull have been skeptical of the approaches from Fort Worth, Texas-based TPG since a cut to Billabong’s profit forecast on Dec. 19 caused the shares to fall 51 percent in two days.

Billabong first disclosed TPG’s interest on Feb. 17, saying the buyout group offered A$3 cash per share to purchase the company, including the Nixon brand.

The deal wasn’t certain enough, Billabong said at the time, and Trilantic’s offer for Nixon offered a better chance to reduce its then-A$526 million debt load.

TPG returned three days later offering the same amount for the company without Nixon, and was then rejected Feb. 27. The company said in a statement that Merchant viewed A$3 as “significantly below the underlying value of the company”.

“Directors up for re-election need to be accountable for what they’ve done,” Vas Kolesnikoff, chief executive officer of the Australian Shareholders Association, said before today’s vote.

A further offer at A$3.30 a share was rejected the following day. Merchant and Paull wouldn’t support Billabong helping to facilitate a TPG bid even if it offered A$4 a share, the directors said in a letter from their lawyers Minter Ellison attached to the company’s regulatory statement.

Board Unanimous

“Gordon in no way prevented the board from accepting any bid proposal that was suggested,” Chairman Kunkel said today. “The decisions were made unanimously by the board.”

A second buyout firm, which Billabong didn’t identify, walked away last month after indicating it could match the A$1.45 offer, the company said at the time. Boston-based Bain Capital Partners LLC made the competing offer, people familiar with the matter said in September.

TPG withdrew its offer Oct. 12, and the stock fell to a record low of 74.5 Australian cents Oct. 16, about one-third of the A$2.30 paid by individual investors in its August 2000 IPO.

To contact the reporter on this story: David Fickling in Sydney at

To contact the editor responsible for this story: Stephanie Wong at

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