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  Billabong Americas President Paul Naude

Updated at 9:41 a.m. with some more details about the deal

 

Former Billabong Americas President Paul Naude and private equity firm Sycamore Partners have the Billabong acquisition nearly sewn up.

 

The company said in a release that it has entered into a 10-day exclusivity period with Sycamore and Naude, which values the company at 60 cents per share, or A$287 million.

 

In U.S. dollars, that values the company at approximately $300 million, less than the US $464 million value placed on Nixon when Billabong sold a portion of it to a private equity firm in 2012.

 

By comparison, PPR paid US $607 million for Volcom, a considerably smaller company but one with no debt, in 2011.

 

I have been told that the total enterprise value of the Sycamore offer for Billabong is closer to $600 million, including the price per share, and the assumption of Billabong’s debt and long term liabilities. Billabong reported net debt of A$152 million at the end of December.

 

When all of that is taken into account, the EBITDA mulitple is about 7 times the most recent downgraded EBITDA forecast for the full year, I have been told.

 

The new entity will also assume about $400 million in lease liabilities.

 

Billabong stock, which will resume trading Wednesday in Australia, last closed at 73 cents per share. Analysts expect it to drop even more when trading resumes.

 

According to Billabong, founder Gordon Merchant and former employee Colette Paull, who own about 16% of the outstanding stock, have said they will support the Sycamore offer. All along, people thought Merchant would back Naude, who Merchant originally chose to run the U.S. operation.

 

Under the proposal, Merchant and Paull must exchange their combined holdings for stock in an entity being set up for the takeover, according to Bloomberg News.

 

Another 8.9 percent of the entity is available for shareholders who don’t want to take the 60 cents cash.

 

Merchant, who stands to lose the most money of all, previously torpedoed a $3.30 per share offer from TPG as too low before knowing how the situation would deteroriate.

 

Billabong stressed in the press release that there is no guarantee the deal will take place.

 

During the 10 days, Sycamore will have an accounting firm complete a quality of earnings analysis, which Billabong said is typical in this kind of takeover process.

 

VF Corp was in the bidding for the Billabong brand as well, and had partnered with Altamont Capital, which wanted to buy the rest of the company.

 

Originally, VF Corp. and Sycamore had both placed preliminary offers of $1.10 per share.

 

After a major acquisition spree and some retail acquisition missteps, mixed in with the global economic instability, the company that had a $4 billion market cap at one point experienced a steep reversal of fortunes that came to a head in the last year or two.

 

The company has repeatedly cut its earnings forecast, had potential acquirers, including TPG, walk away after conducting due diligence, sold part of Nixon, been forced to raise more equity to reduce debt, fired a CEO, hired a new one, fired a CFO, gone through restructuring and cost cutting, watched its stock drop to a low of 63 cents, and dealt with months of drama about what group – if any – would buy the company.

 

Many in the industry were rooting for Paul, including some executives from competing companies and industry retailers, and some Billabong employees.

 

Some are particularly pleased that one of the industry’s own will be getting the company, and the potential to take it private and away from the glare of the publicly traded market in Australia is appealing.

 

However, I have heard a few rumblings that Paul was a key member of the management team that made several aggressive brand and retail acquisitions that along with the global economic challenges helped land the company where it is today.

 

No matter what happens, if the company sells at 60 cents per share, the big losers are the shareholders, Andrew McLennan, Deputy Head of Research with the Commonwealth Bank of Australia, told me in a previous conversation.

 

If a deal is done, “the losers would be the long suffering shareholders who have lost from the poor execution and oversight of the company’s retail strategy over the last few years,” he said.

 

 

See Page 2 for the official Billabong press release

 

 

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BILLABONG INTERNATIONAL LIMITED ENTERS PERIOD OF EXCLUSIVITY WITH THE SYCAMORE CONSORTIUM

 

GOLD COAST, 9 April, 2013: On 14 January 2013, Billabong International Limited (“Billabong” or the “Company”) announced that it would conduct a process to evaluate whether a change of control proposal, at a price and on terms that the Board would recommend, could be secured. Participants in this process consist of a consortium comprising Paul Naude and Sycamore Partners (the “Sycamore Consortium”) and a consortium comprising Altamont Capital Partners and VF Corporation (the “Altamont/VF Consortium”).

 

Billabong today announces that it has entered into a ten business day period of exclusivity with the Sycamore Consortium in relation to a non-binding proposal to acquire 100% of Billabong’s shares for A$0.60 cash per share or, at the election of Billabong shareholders, scrip in a Sycamore affiliate to be incorporated for the purposes of making the bid (“NewCo”). If scrip elections exceed 24.9% of NewCo shares, such elections would be scaled back pro rata.

 

It will be a condition of the Sycamore Consortium proposal that scrip elections are received for at least 15% of the shares in Billabong, and that Gordon Merchant and Colette Paull confirm that, in the absence of any superior proposal, they (and their families) will elect to receive the scrip consideration. Gordon Merchant and Colette Paull, whose families currently hold approximately 16% of the shares in Billabong, have advised that they are prepared to give such confirmation. The elections by the Merchant and Paull families are subject to the same pro rata scale back as all other shareholders if total scrip elections exceed 24.9% of NewCo shares.

 

The ten business day exclusivity period has been granted to the Sycamore Consortium to allow it to engage an internationally recognised accounting firm to complete a confirmatory quality of earnings analysis, typical of an acquisition debt financing.

 

Billabong has also negotiated a Scheme Implementation Deed (“SID”) with the Sycamore Consortium, although no binding agreement has yet been entered into. Any SID that is entered into will be subject to a number of conditions, including that there is no material adverse change affecting Billabong after the date of the SID, and that the conditions of the bidder’s debt funding are satisfied.

 

There is no guarantee that the proposed transaction will proceed, and neither the Sycamore Consortium nor Billabong is under any obligation to proceed with the proposed transaction unless and until each party determines, in it sole discretion, to execute and deliver a binding SID and proceed with the transaction.

 

Billabong will update on the status of this proposal at the end of the period of exclusivity.

 

In the meantime Billabong shareholders do not need to take any action in relation to this matter.