By Malcolm Maiden The Business Day
A lengthy due diligence process inside sportswear group Billabong concluded on Thursday, and the two consortiums involved are believed to have both firmed up their earlier indicative takeover proposals.
Billabong’s board is expected to meet over the Easter break to consider the confirmed offers, from the United States-based leisure wear group VF Corporation and its private equity partner, Altamont Capital Partners, and from Billabong’s top US executive, Paul Naude, and his US private equity bidding partner, Sycamore Partners.
It is likely that the offers are substantially below the indicative price of $1.10 a share that was floated to Billabong by Naude and Sycamore in mid-December, and by VH Corp and Altamont in mid-January. Billabong shares eased by 2¢ to 73¢ on Thursday, and the market speculation is that offers of about 80¢ a share are possible.
It is also worth noting that Billabong has its own recovery plan in train, and has said consistently that it will only support an ”acceptable” binding proposal. Given that any takeover would be by way of a scheme of arrangement that bidder and board would take jointly to shareholders, this is an important caveat.
Confirmation that offers have been made should, however, be seen as a plus for Billabong, which was forced to suspend trading in its shares briefly on March 21 after a wave of selling on rumours that the consortiums had pulled out.
The shares fell from 81¢ to 63¢ and then rallied to 69.5¢ before trading was halted. Billabong said that the due diligence processes were alive, but the shares stayed weak.
Developments now hang on how much has been offered and how Billabong reacts, and the attitude of 14.5 per cent shareholder and Billabong founder Gordon Merchant will be important.
Merchant rejected a $3.30-a-share takeover proposal from private equity group TPG early last year, saying $4 was not enough, but that was then, and this is now. The extent of Billabong’s problems is better understood, and so is the execution risk that accompanies the attempt to revive the group’s fortunes that has to be mounted regardless of who owns the company.
In August last year, when Billabong chief executive Launa Inman unveiled her own plan to rationalise and renovate Billabong, it owned 12 retail chains and offered 25,239 individual styles, or clothing products, for example. Less than a quarter of them were generating 80 per cent of the group’s sales. Administrative systems had not been merged as Billabong undertook a series of expansionary acquisitions in Australia, the US and Europe, and there was no integrated view of the operations.
Given the execution risk, a bid at $1.10 a share would probably have been recommended. A lower one might be, too.
mmaiden@fairfaxmedia.com.au
Read more: http://www.theage.com.au/business/billabong-ready-to-consider-takeover-offers-20130329-2gz4e.html#ixzz2Ow4AO2ie
