Who will pounce on Billabong first?

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This was published 11 years ago

Who will pounce on Billabong first?

By Adele Ferguson

As Billabong returned to the bourse today after announcing a $225 million equity raising last week, its shares plunged almost 50 per cent to below the issue price of $1.02, signalling the utter contempt of investors towards the stock.

The share price fall came as Billabong’s major shareholder, founder and director Gordon Merchant was lying low at his beach house in Jefferys Bay, South Africa.

<i>Illustration: David Rowe</i>

Illustration: David Rowe

The fall comes as at least two industry players and private equity operators are believed to be considering taking a strategic holding or making a full takeover bid.

It isn’t the first time private equity has considered a tilt at the company - TPG made an offer at $3.30 a share in February but Merchant used his stake to block TPG’s advances. The difference this time around is Merchant won’t be in a position of strength to knock an offer back.

This follows a shock announcement by the company last week that it would have to raise $225 million in fresh equity at $1.02 a share. What made matters worse was news that Merchant won’t be taking up his full entitlement in the severely discounted capital raising. This decision, after knocking back a takeover offer four months ago, has enraged investors to the point where a few are contemplating a class action against the company.

Troubles at Billabong, which has seen its share price go from a high of $17 a share five years ago, to a situation where it is now making a non renounceable issue at $1.02 a share, can be attributed to an ill-judged strategy, a series of profit downgrades, liquidity and debt fears, a dysfunctional board and now a capital raising.

Not surprisingly, staff moral is dangerously low. It wasn’t helped when the board decided to appoint a new chief executive, Launa Inman, last month. At the time of her appointment there was scepticism in the investment community that she did not have the right skill set to fix the company’s mess. An increasing number of staff are now questioning her appointment as she comes to grips with the different brands, including ascribing the right name to the right brand.

Sources close to the company said Gordon has gone away to his beach home for three weeks to digest the realisation that a deal is inevitable. He is believed to have not been present at last week’s board meeting for the equity issue decision. His absence, along with a string of other factors, has left staff gutted.

One source said Gordon’s wealth was tied up in Billabong and despite the decimation of his wealth he was reluctant to sell out. It is believed that if a private equity operator or trade buyer offered him a role and a stake in any takeover, he would back it.

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It comes as a number of shareholders, including Billabong’s second largest shareholder Perennial Value, has suggested he resign from the board.

Speculation is rife that within the next two to four weeks private equity and a trade buyer will emerge. Names being touted include TPG, KKR and Archer, but the list could be far greater given this company still has some strong brands, it has just lost its way. Trade buyers with an interest are believed to include Nike and French luxury group PPR, which bought Volcom Inc, the Costa Mesa surf-and-skate brand, last year for $US607.5 million.

The key topic among staff is who will pounce first, private equity or a trade buyer. The overwhelming attitude is that a private equity owner would enable some existing staff to jockey for positions, while a strategic partner or trade buyer would install their own team. For Inman, who has been in the job a month, depending on what transpires, she could end up being one of the shortest reigning CEOs in listed company history.

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Investors are not surprised chairman Ted Kunkel will step down between now and the next annual meeting given he signed off on the acquisition of hundreds of retail stores that are now being closed, as well as the sale of a 51.5 per cent stake in one of the company's best assets, accessories brand Nixon.

The company has a lot of soul searching to do between now and a takeover, but one thing is certain Billabong will never be the same again.

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