Billabong offer price sinking
Billabong on Tuesday called for a trading halt on its shares while negotiations continued with the two suitors, the protracted process sending the share price on a roller-coaster ride and leaving shareholders clueless as to what is going on behind closed doors.
On Tuesday, Billabong said the halt until Thursday, its second in two weeks, was necessary while it continued negotiations on potential takeover bids from the two groups.
"The company expects to make an announcement as and when discussions are complete," Billabong said on Tuesday.
One offer is from Sycamore Partners and Mr Naude; the other is from Altamont Capital and VF Corp, the US retailer behind 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 expects the two consortiums to maintain the $1.10 indicative price that each offered before conducting due diligence but investors 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 about $50 million in the 2015 financial year. It said this was because of 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 into raising more capital.
UBS retail analyst Ben Gilbert said the most likely outcome was a 91¢-a-share offer - based on the original eight-times earnings before interest and tax multiple before the recent downgrade.
In the absence of a bid, though, Billabong might need a $100 million capital raising to fix the company's balance sheet, he said.
Billabong has a current market value of just under $350 million. Its shares last traded at 73¢.
Frequently Asked Questions about this Article…
Two US private equity suitors have been negotiating takeover bids for Billabong, and market speculation says the offer price has been reduced from an initial $1.10 a share to as low as $0.80. The drawn-out process has prompted trading halts and left shareholders unsure about the final outcome, which is why investors are concerned.
One bid involves Sycamore Partners together with Billabong executive Paul Naude, and the other involves Altamont Capital with VF Corp. VF Corp has said it is only interested in the Billabong brand, while Altamont is interested in acquiring the remainder of the business, including the retail network.
Billabong called a trading halt to allow negotiations with the two suitors to continue without market disruption; it announced a halt until Thursday and said it would make an announcement when discussions are complete. This was the company’s second halt in two weeks.
Credit Suisse reassessed Billabong and gave a weighted valuation of about $0.59 a share, while UBS suggested a likely offer could be around $0.91 a share based on an eight-times EBIT multiple used prior to a recent downgrade.
Credit Suisse outlined a downside case where EBITDA falls from current guidance of $74 million to about $50 million in the 2015 financial year — a scenario in which the broker said equity value could be zero.
Yes. UBS warned that, in the absence of a bid, Billabong might need a capital raising of about $100 million to shore up its balance sheet.
The speculation and negotiation process has driven share-price volatility — at the time of the report Billabong’s shares last traded at $0.73, well below the initial $1.10 indicative bid and near broker valuations.
Billabong’s market value was reported as just under $350 million while the takeover talks and associated speculation continued.
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