Sale of Billabong assets likely as abandoned takeover halves company value

The future of surfwear retail group Billabong is once again up in the air, after half of the company’s listed value was erased yesterday after it announced an end to lengthy takeover negotiations with no deal in place.

The retailer was forced to issue its third downgrade in six months as the brand is now fighting harder than ever to stay relevant, currently valued at only $110 million.

Its share price fell by 49.45% yesterday to $0.23, a reflection of the deflated public confidence in the iconic Australian brand.

This morning, shares were trading at just $0.24, having improved 4% in early trade.

Billabong had been in takeover talks with US-based private equity firm Sycamore Partners and a consortium made up of Altamont Capital and VF Corporation, but the company was unable to reach an agreement with either of the parties.

Discussions are now being held with both Sycamore and Altamont regarding possible refinancing and asset sales, the profits of which would go toward repaying Billabong’s debts.

Billabong chairman Ian Pollard said in a statement the intention is to “aggressively reduce costs” across the retailer’s international operations and talks will be concluded as quickly as possible.

“The refinancing is intended to provide the company with a comprehensive solution and an appropriate capital structure, allowing it to continue its reform agenda,” he says.

Billabong downgraded its earnings forecast by up to 10% yesterday, with the company predicting its earnings before interest, tax, depreciation and amortisation to be between $67 million and $74 million, down from the previous guidance of between $74 million and $81 million.

In terms of its Australian trading, the company said its wholesale division is “on plan” but its retail performance is “below last year”.

Australian retail sales on a comparable store basis are down 5.4% compared to this time last year.

SmartCompany contacted Billabong but there was no comment available.

But despite the end to takeover negotiations, Retail Doctor Group chief executive Brian Walker told SmartCompany something will “rise from the ashes”.

“We will probably see a sale of its assets. There will be pruning and a consolidation, this market is more interested in the pieces of the pie, but the core brand is still good.”

“It’s going to be about making it relevant to a set of new people. By way of extreme example, Adidas introduced a retro range and this brought in a whole new group of people. It’s a big question, but I’m sure Billabong is working on it,” he says.

Retail Oasis director Nerida Jenkins told SmartCompany Billabong has been on a slippery slope for the past five years.

“It’s been courting private equity money for a good 12 months and they’ve been stuck in a situation where they’ve had high debt to manage. Billabong rejected a decent offer from TPG last year and now its US counterparts are pulling its offers.

“It’s built up a serious debt equity issue and at this point it’s in a dire situation for some cash to prop up the business,” she says.

In February 2012, TPG made an initial offer to Billabong of $854 million, substantially above the offers on the table from Sycamore and Altamont when negotiations ended yesterday, but TPG’s offer was rejected with Billabong saying it would not accept anything below $1.03 billion.

In October 2012, TPG withdrew its offers and Billabong’s shares dropped 15%.

In December 2012, Billabong’s president of US operations, Paul Naude, in conjunction with Sycamore made an offer for $1.10 per share, this was later downgraded to $0.60 per share in April this year.

The Australian Financial Review reported this morning the current discussions could result in the sale of one or two of Billabong’s key brands such as Element or DaKine to private equity.

Jenkins says this is probably the best move for the company in its current situation.

“Selling off its brands is probably the best idea for Billabong.”

“The brand itself, beyond all these sorts of issues, is well and truly off the mark. It’s trying to play out in a category which requires a ‘super cool’ brand positioning and offer to a savvy youth audience, but it’s getting more and more mature.”