Billabong offer price sinking

Speculation is mounting that Billabong's two US private equity suitors have dropped their takeover offer price to as low as 80¢ a share, down from an initial proposal priced at $1.10, with the bidding team associated with Billabong executive Paul Naude tipped as front runner.

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¢.