Billabong investors wait to see if bidding groups dive in
The company's shares face another rout if a successful offer does not emerge from recent due diligence, one analyst saying Billabong may need a capital raising to fix its "stretched" balance sheet.
Billabong would not comment about offers by the two bidding groups, which led to the board meeting on the weekend.
An announcement on the status of the offers is expected before trading starts on Tuesday morning. One offer is by Sycamore Partners and Billabong executive Paul Naude; the other is by Altamont Capital and VF Corp, the US retailer behind well-known brands such as Timberland, the North Face and Vans.
VF Corp has said its only interest is in the Billabong brand. Altamont is interested in acquiring the rest of the business, which includes the vast retail network.
No one is expecting the two private equity-backed consortiums to maintain the $1.10 indicative price that each offered before conducting due diligence and yet another downgrade from the company.
Investors may face worse scenarios than a lower bid price.
Credit Suisse recently reassessed the company's valuation on the basis that bids fail to emerge, giving it a weighted valuation of 59¢ a share.
Credit Suisse said there was a downside scenario in which earnings before interest, tax, depreciation and amortisation declined from current guidance of $74 million this year to $50 million in the 2015 financial year due to a reduction in wholesale earnings resulting from brand rationalisation.
"At $50 million EBITDA, equity value is zero," the broker said.
Last week, UBS raised the prospect that investors may be forced to raise more capital.
UBS retail analyst Ben Gilbert says the most likely outcome is a 91¢ a share offer - based on the original 8 x EBIT multiple before the recent downgrade.
Without a bid, Billabong might need a $100 million capital raising to fix the company's "stretched" balance sheet, Mr Gilbert said.
Billabong has a current market value of just under $350 million.
Billabong shares, which last traded at 73¢, hit a low of 63¢ last month when doubts emerged if bids would result from due diligence.
Frequently Asked Questions about this Article…
Billabong shareholders are awaiting an announcement (expected before trading starts on Tuesday) about whether either of two bidding groups have made firm bids following recent due diligence. The uncertainty has put the company's shares at risk of further falls.
One proposal is from Sycamore Partners together with Billabong executive Paul Naude. The other is a consortium of Altamont Capital and VF Corp (the US retailer behind brands such as Timberland, The North Face and Vans).
VF Corp has said it is only interested in acquiring the Billabong brand. Altamont Capital is interested in acquiring the rest of the business, including Billabong’s large retail network.
Analysts do not expect the two private-equity backed groups to maintain the $1.10 indicative price after due diligence. A lower bid or other outcomes are being widely anticipated.
If bids fail to materialise, analysts warn Billabong’s shares could face another rout. Credit Suisse recalculated a downside weighted valuation of 59¢ a share if bids fail, and said a scenario where EBITDA falls to $50 million could mean equity value is effectively zero.
Yes. UBS suggested the most likely offer might be about 91¢ a share, but also raised the prospect that without a bid Billabong could need a roughly $100 million capital raising to fix its described 'stretched' balance sheet.
The article notes Billabong’s shares last traded at 73¢, with a recent low of 63¢ recorded last month. The company’s market value is stated as just under $350 million.
Everyday investors should watch for the official announcement expected before trading on Tuesday about the status of the offers, monitor any updated analyst commentary (including valuations from Credit Suisse and UBS), and follow news about potential bids, revised offer prices, or a possible capital raising—all key drivers for the share price according to the article.
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