tpg $766m bid, page-12

PE lobs $766m bid for Billabong
PUBLISHED: 9 hours 37 MINUTES AGO | UPDATE: 1 hour 57 MINUTES AGO PUBLISHED: 16 Feb 2012 PRINT EDITION: 16 Feb 2012
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The emblematic Australian surf-wear company has struggled to adjust its business model in recent years while its clothing has failed to remain relevant to the next generation of young consumers. Photo: Glenn Hunt

Nabila Ahmed

Billabong International has become the latest embattled company to ­capture the attention of private equity, with the surfwear group receiving a $766 million takeover bid from a group believed to be United States giant TPG.

Billabong chairman Ted Kunkel, who two months ago announced a capital structure review of the debt-laden retailer and manufacturer, is understood to have received the offer of at least $3 a share on Tuesday.

The offer represents a premium of about 70 per cent to the stock’s last close of $1.79. Shares in Billabong have slumped 78 per cent over the past 12 months compared with a 14 per cent decline for the benchmark S&P/ASX 200 Index.

The emblematic Australian surf-wear company has struggled to adjust its business model in recent years while its clothing has failed to remain relevant to the next generation of young consumers.

Billabong told investors in December that it had launched a structural review as investors fretted about the company’s ability to cope with its $600 million debt pile at the same time as its earnings slumped.

It joins the likes of underwear manufacturer Pacific Brands, services group Spotless and paper merchant PaperlinX to attract bids from opportunistic private equity firms armed with more than $7 billion.

Billabong, which reports its interim results tomorrow, has ­struggled to compete as retailers such as Kmart and Target undercut its prices for surf-wear such as board shorts, squeezing profit margins. Its expansion into retail is faltering as consumer sentiment in its three markets – the United States, Europe and Australia – remains low.

However, Billabong still has a host of brands that are strong and inter­nationally recognisable. Most of Billa­bong’s earnings are generated offshore, with Australia accounting for about a third, and there is an argument that it would be better managed by an operator with global experience.

It is understood TPG has secured commitments from a number of Australian and international banks for the financing of its offer.

Billabong is among a long list of Australian retailers, including David Jones and JB Hi-Fi, to downgrade earnings. It is understood several private equity firms have been studying Billabong as a takeover prospect since the company said it had appointed Goldman Sachs to conduct the review into its capital structure.

TPG, which owns private hospital operator Healthscope with private equity firm The Carlyle Group, has not bought a retail businesses in Australia since it floated department store chain Myer in 2009. The Myer shares have never traded above their issue price of $4.10 and closed at $2.04 yesterday. TPG is also being pursued by the Australian Taxation Office over its profits from the Myer sale.

Billabong was founded in 1973 by Gordon and Rena Merchant and soon developed a loyal following among young surfers. “It captured the spirit of the Australian ethos – the surf, sand and sea. That whole surf culture was a sub-culture that we called our own. Over 30 years ago, that was quite powerful within Australian youth,” Karen Webster, program director of fashion at RMIT told The Australian Financial Review ?in December . “The world has changed dramatically?.?.?.?It’s just that surf, as an aesthetic, is no longer the hippest fashion look.”