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Struggle to pin down Billabong fair value

Published: 21 Mar 2013 00:32:52

Billabong’s two suitors have less than a week before final bids are due for the Australian surf and skatewear company.

With the stricken retailer still under considerable pressure, investors are struggling to pinpoint a fair value for the company. It should be noted consensus is that asset sales or an equity raising will be required if a satisfactory offer does not eventuate.

United States-based retailing company VF Corp and private equity firm Altamont Capital Partners are up against Billabong director Paul Naude, former head of Billabong Americas, and buyout company Sycamore Partners.

Both groups put forward indicative $1.10-a-share proposals, but analysts estimate any bid may be cut to between 80¢ and $1 a share.

Credit Suisse’s Grant Saligari has chimed into the debate.

His downside scenario if a private equity bid fails to emerge from the current discussions makes for interesting reading.

Saligari reckons if earnings before interest, tax, depreciation and amortisation drop from the current guidance of $74 million for 2013 financial year to around $50 million in 2015 financial year due to a reduction in wholesale earnings resulting from brand rationalisation, then equity value is zero.

Interestingly, his price target is $1.10, in line with the current proposals on the table. Sources close to both camps say the data room remains open and two proposals are expected to be submitted next Thursday.

VF, the owner of The North Face and Vans, wants only the namesake brand. Altamont will take the balance of the portfolio