An appalling day if you happened to be a remaining shareholder in Billabong – the shares lost 58% of their already very diminished value after the sale of the company to possible US buyers fell over.
All that was left was a near smoking ruin, with the company reporting its third profit downgrade in 10 months and complete and utter chaos.
In short, Billabong was too unattractive to be bought by its two would-be US suitors. Their due diligence didn’t convince them to turn their mooted $544 million offers into actual deals and cold, hard cash. And months of talks with one of them failed to get a lower cost deal over the line.
And all that remains of those possible US sales is discussions on possible refinancing options with the two consortiums – one led by its former US boss Paul Naude and private equity firm Sycamore Partners, and the other by private equity firm Altamont Capital Partners and US clothing giant, VF Corp.
It was a humiliating day for the company and the board (and former board and management) who have trashed one of this country’s premier retail brands.
The shares hit an all time low of 19c before closing at 23c – down 22.5c or nearly 50%. (Who were the optimists who bought at 19c and still hold at 23c?).
Billabong’s trail of value destruction
It should also be pointed out that with more than 64 million traded yesterday, there were also a lot of optimists buying in at the lower prices.
The shares weren’t as unwanted as the share price plunge might first suggest.
The shares have been suspended for most of the past month, so there was a lot of pent up selling waiting to happen if the news on the bid had been negative. Which it was.
It is the latest in this ongoing sale debacle that has seen Billabong reject a bid of $3.50 a share (valuing the company at $850 million) from rival private equity firm TPG Capital Management in February of last year.
Since then it has been a steady diet of will the sale happen, who Billabong is talking to, long talks, rumours of deals done, not done and two profit downgrades. Six years ago it traded at $14.06. Short of total collapse, is this the biggest destruction in value we have seen (exempting the flops like Babcock and Brown and Allco Financial)? If it’s not, it is a contender.
Not helping were a poorly timed expansion in the US and several other markets, high debt to finance that and then keep trading through the GFC and recession in the US. Billabong removed CEOs, renewed the board, sold assets, closed stores, did a deal on a new strategy (especially in the US) – all to no avail.
After the Sycamore and Altamont consortiums put forward their bids in December and January, Billabong entered into exclusive talks with the Sycamore group about a reduced $300 million offer. Not even that knocked down price saw a deal that could be done.
Now Billabong says it is discussing "alternative refinancing and asset sale transactions" with the two consortia and any proceeds would be used to repay its existing syndicated debt facilities in full. "It’s our intention to conclude these discussions as soon as practically possible while aggressively reducing costs across all our global operations," Billabong Chairman Ian Pollard said in a statement.
Billabong also said that weaker trading in Australia and higher-than-expected start-up losses in its Surfstitch Europe business meant earnings before interest, tax, depreciation and amortisation (EBITDA) would be in the range of $67 million to $74 million. That compared to the August 2012 forecast of $100 million to $110 million – or down 40% or more.
