Billabong International Ltd., the Australian surfwear company that’s breached debt payment terms, suspended its shares to pursue takeover talks after an exclusivity period with one potential bidder lapsed.
Billabong needs trading to be on hold to “progress discussions with interested parties”, the Gold Coast, Australia-based company said in a regulatory statement today. Exclusivity over a provisional A$287 million ($292 million) bid from Sycamore Partners Management ended yesterday and Billabong had also been in talks with Altamont Capital Partners.
Shareholders who’ve seen the stock fall as low as 45.5 Australian cents may need to fund a further capital raising in the absence of a bid, according to Credit Suisse Group AG, UBS AG and Commonwealth Bank of Australia. Billabong, which has reported declines in sales for four consecutive semi-annual periods, said in February the company will post 80 percent of its assets and 85 percent of its earnings as security to its lenders after writedowns put it in breach of terms on its debt.
“They need to get the bid issue solved,” Nick Berry, an analyst at Nomura Holdings Inc., said by phone from Sydney, adding a takeover is still the best option for shareholders. “There’s risks around what the value of the equity will be longer term, certainly risks around the ability to service debt.”
The Sycamore group, which also includes Billabong’s Americas director Paul Naude, put in a provisional bid of A$1.10 a share Dec. 19. The group was looking for a price below a 60 cents a share revised offer made April 9, the Australian Financial Review newspaper reported on its website yesterday, without saying where it had got the information.
Christina Stenson, a spokeswoman for Altamont at Brunswick Group, declined to comment on the private equity firm’s plans earlier today. Altamont had studied a bid with a provisional price of A$1.10 and wasn’t admitted into the exclusive talks last month.
Billabong’s market value has declined 67 percent since Feb. 17, 2012, when the company reported that TPG Capital had approached it with a takeover offer. Since that date, Billabong has already turned down three private equity bids and had suitors walk away twice.
“The number of companies undertaking due diligence and in turn passing or putting forward materially lower bids suggests to us other underlying issues could be present.” Ben Gilbert, an analyst at UBS in Sydney, wrote in a note to clients April 9. There’s “significant downside risk to the share price should a bid not proceed,” he said.
Billabong already suspended its shares for three days last month, meaning it must restart trading May 13 to avoid triggering restrictions on its ability to raise cash through a fast-track sale of shares, according to a 2011 briefing note on Australian stock exchange rules by law firm Clayton Utz.
Billabong may need to raise about A$100 million from its shareholders if neither bidder agrees to a takeover offer, according to UBS’s Gilbert.
An equity raising may in any case no longer be possible, as investors won’t be as prepared to participate as they were when Billabong last announced a share sale in June, Nomura’s Berry said. The company’s current market value of A$218 million is less than the A$225 million in cash it raised from shareholders in that capital raising.
“The last four years, it’s been difficult to ascertain why underlying earnings have been declining at the rate that they have,” he said. “You have to ask the question of what you’re buying.”