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Billabong faces break-up if bid succeeds

16 Jan 2013 THE AGE - COLIN KRUGER


BILLABONG'S latest suitors are proposing a break-up of the embattled leisurewear retailer if their due diligence results in a successful takeover.

VF Corp, the US retailer behind well-known brands such as Timberland, North Face and Vans, said in a statement on Tuesday that its only interest is in the Billabong brand itself. Its private equity partner, Altamont Capital, is interested in the rest of the business which includes the vast retail network that has proved to be the company's undoing.

"This interest is consistent with VF's stated intent to pursue acquisitions, particularly in the Action Sports category, to continue to build shareholder value," the company said in a statement.

"Altamont's interest lies in acquiring Billabong's other brands and related assets, and is predicated on the firm's mandate to invest in situations where it can provide strategic and operational support to build business success stories."

Altamont has reportedly signed on former Oakley chief executive, David Scott Olivet, to run its share of the Billabong business.

VF said the $1.10 a share indicative proposal did not constitute a binding offer for Billabong, nor did it impose any obligation on VF, or Altamont, to make an offer for Billabong.

The partners are now one of two competing parties conducting due diligence on Billabong with conditional proposals that both value the company at $527 million.

The other interested party, led by Billabong executive Paul Naude and private equity group Sycamore Partners, commenced due diligence just before Christmas.

News of the offer sent Billabong shares sharply higher on Tuesday, up 16 per cent to a close of 98¢, but the stock is still well below the $1.10 indicative offer price.

This signals that while a successful offer is now considered more likely, the market is still cautious on either proposal coming to fruition - let alone at this price.

On the positive side, JPMorgan's Shaun Cousins said the renewed interest may signal that, after 10 downgrades since the 2008 financial year, Billabong earnings may finally be nearing bottom.

"This could suggest 2012-013 could be nearing the low point in the downward trajectory of the Billabong earnings profile," Mr Cousins said.

At its peak in 2008, Billabong reported earnings before interest, tax depreciation and amortisation (EBITDA) of $292 million. Its current forecast this year is for underlying EBITDA of $85 million to $92 million.

Analysts have said that the VF/Altamont bid has a lot of credibility as a potential owner of the Billabong business.

"We have long thought the Billabong brands would be a sensible fit for VF Corp given its attraction to global brands which are not broken but have potential to improve, and its other investments in the action sports space [Vans and Reef]," said Deutsche Bank's Michael Simotas.