The odds are firming on Billabong receiving a concrete bid when exclusive talks end next week, but the surfwear group's shares are still trading at a 20 per cent discount to the tentative offer from its suitor.
The gulf between Friday's closing share price of 48¢ - a record low - and the tentative offer of 60¢ a share by Billabong executive Paul Naude and Sycamore, gives an indication of the pessimism in the market following a string of earnings downgrades and failed suitors.
JP Morgan analyst Shaun Cousins indicated the pessimism may be unwarranted.
Mr Naude and Sycamore have already dropped their tentative offer from $1.10 to 60¢ this month following due diligence. Billabong has indicated that the extended scrutiny, which is due for completion next week, is more to do with bank financing.
"The Sycamore consortium appears to have completed its due diligence, with the exclusivity period appearing more for the debt providers," Mr Cousins said in a report last week.
Billabong has said neither side is obligated to proceed with a deal, but analysts contend that the company has little choice given the potential downside if a bid does not materialise after so many attempts over the last 18 months.
This could include further earnings downgrades and "emphasis by the board about execution and refinancing risks still ahead" if the takeover bid is aborted, according to Citi's Siobhan Lee.
"The company has been backed into a corner and, in our view, the shareholder's best option will be to accept, given the alternative is likely to be even lower," Ms Lee said.
UBS said the company may need to raise another $100 million from the market if the bid fails. The company raised $225 million in the middle of last year at just over $1 a share. UBS said the fact that the 60¢ offer price has been put forward by the board suggests the directors have "a low level of confidence" in the turnaround strategy put forward in August last year.
The series of takeover offers have been a constant distraction for Billabong's chief executive, Launa Inman. Earlier this month she said the approaches have been "very disruptive".
Analysts, including Mr Cousins, have also been wary of the offer from Naude/Sycamore for investors to take shares in the bidding vehicle, Newco, rather than taking cash for their shares. "The Sycamore consortium structure poses uncertainty for shareholders given the lack of detail on Newco, particularly the level of gearing and treatment of shareholders", including dividend, he said.