Billabong has received a conditional bid proposal Friday, December 14, from a consortium made of up of former Billabong Chairman Paul Naude, Sycamore Partners Management, and Bank of America Merrill Lynch, to acquire all the shares in Billabong for $1.10 cash per share. Here’s the official statement from Billabong’s Investor Relations website:
After market close on Friday, 14 December, the Board of Billabong International Limited ("Billabong" or "Company") received a confidential, indicative, non-binding and conditional proposal from a consortium comprising Paul Naude, Sycamore Partners Management as “cornerstone equity investor” and Bank of America Merrill Lynch as “lead debt financier” (the "Consortium") to acquire all of the shares in Billabong for $1.10 cash per share.
The proposal is subject to:
completion of due diligence investigations (which are expected to take 4-6 weeks) to the
satisfaction of the Consortium;
documentation and finalisation of binding financing arrangements from the Consortium’s
investors and financiers;
no distributions or dividends by Billabong after the date of the proposal; and
no breach of the transaction conditions referred to below.
The proposal states that any resulting transaction would also be subject to a number of
minimum acceptance of more than 90% of the shares on issue if the transaction
proceeds by way of a takeover;
regulatory approvals, including Foreign Investment Review Board approval;
no material adverse change in Billabong;
no material acquisitions or disposals, or prescribed occurrence in relation to Billabong;
additional conditions that are specified or required by the Consortium following its due diligence investigations.
The proposal also states that if confidentiality in the proposal is lost, for any reason, the proposal is withdrawn with immediate effect. Media reports named the relevant parties and the proposed price this week.
Billabong will confirm with the Consortium:
The status of the proposal in regards to it ceasing to be confidential;
The status of the proposal following the trading update to the market which is detailed below.
If the proposal is not withdrawn, the Billabong Board will proceed to consider the proposal and its terms, and will update the market in due course. In the meantime, Billabong shareholders do not need to take any action in relation to this matter. Goldman Sachs is acting as financial advisor and Allens is acting as legal advisor to Billabong.
At the Company's 2012 annual general meeting in October ("AGM"), the Company indicated that its trading results for the first quarter ended 30 September 2012 were in line with forecast and that the Company was on track to deliver Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) in the range of $100-$110 million in constant currency terms.
At the AGM, the Company highlighted that the second quarter trading results (driven by December) and the fourth quarter trading results (driven by June) are the highest revenue and profit contributors for the financial year.
Following receipt and finalisation of management accounts reflecting November trading results and receipt of preliminary retail sales data for company owned stores for the period ended 16 December, combined with Billabong's re-forecasting process, the Company has updated its full year forecast.
Billabong now expects to deliver underlying EBITDA in the range of $85-$92 million in constant currency terms, excluding significant items which are estimated to be approximately $29 million at this time. Including these significant items, reported EBITDA is expected to be in the range of $56-$63 million in constant currency terms. A reconciliation of forecast reported EBITDA in constant currency terms to forecast underlying EBITDA in constant currency terms is as follows:
A$ million (constant currency)
Reported EBITDA Range 56 – 63
SurfStitch Option Revaluation2 13
Transformation Strategy Costs 8
Bid-Related Costs3 5
Restructuring and Other Costs 3
Underlying EBITDA Range 85 – 92
1 The majority of the significant items have already been incurred. Apart from the bid-related costs the majority of the significant items relate to investment in the future of the business, the benefits of which will be realised after FY13.
2 Under the terms of the options to acquire the remaining shares that the Company does not already own in SurfStitch Australia and SurfStitch Europe, and in accordance with IFRS, the
Company is required to recognise through the income statement the revaluation of those options and any deemed compensation expense attached to those options in respect of key employees who continue in the business. This is a non-cash accounting item essentially relating to the acquisition of the remaining shares in these businesses. This will only become a cash item if and when the put and call options under the relevant agreements are exercised.
3 Additional bid-related costs will be incurred if the proposal by the Consortium proceeds.
The major drivers by Region of the reduced underlying EBITDA result include:
o Trading at the West 49 retail business in Canada achieved positive comparable store growth of 3.1% in September but has since deteriorated with high single digit percentage declines in October and November. This trend is expected to continue through the second half. West 49's experience is similar to that of many major North American apparel retailers with outerwear being a big driver of this recent under performance;
o With forward order visibility now into Spring and Summer, the Company is seeing good wholesale results for Billabong and RVCA in the United States, although this is being offset by softness in orders for Dakine and Element and generally tough wholesale trading conditions in Canada;
o Weaker than previously forecast results for South America, in particular Brazil.
o A significant increase in cancellations of orders for winter season product, especially
in southern European territories;
o Lower than anticipated gross margins given the challenging trading conditions;
o Weaker than forecast sales in bricks and mortar retail;
o Lower than forecast indents for summer season product.
Nixon Joint Venture (48.5% share of JV):
o Lower than forecast net profit after tax.
The Directors note the significant gap between the market capitalisation of the Company and its shareholders' funds. A full review of the carrying values of the Company's assets (especially intangibles and goodwill) and its onerous contracts will be conducted at the half year taking into account the then latest trading results. This review may result in impairment and other charges being recorded.
Billabong Chairman Ian Pollard said, “Billabong has undergone a lengthy period of extraordinary corporate activity and while only recently appointed Chairman, I understand the concerns of shareholders. Over much of the past three years it has been seeking to manage volatile and at times unprecedented trading conditions in all markets and has been the subject of several approaches, including Mr Naude's. Under CEO Launa Inman, the management team is undertaking a series of actions which it can control. The Board supports the transformation strategy, which has already delivered some early improvements in operations and in managing costs. However, it will continue to assess the current indicative, non-binding and conditional proposal as well as other matters that may be outside of its control as it seeks to restore the fortunes of the Company”.