Fresh offer not enough to lift ailing Billabong

BILLABONG'S directors have ended some of the uncertainty over the stock with confirmation on Wednesday that they still have a $527 million takeover proposal to consider from one of the embattled surfwear group's senior executives, Paul Naude.

It did little for the market's mood, with the shares falling more than 13 per cent to 85¢ - well below the conditional $1.10-a-share offer from Mr Naude's consortium - due to uncertainty over the bid, and a profit downgrade announced on Wednesday that could halve the company's earnings this year.

Adding to the misery was news from Billabong that asset value write-downs are being considered for the half-year. This could lead to yet another loss this year.

It is believed the earnings target for the four-year turnaround plan of new chief executive Launa Inman is also under review for the half-year result in February.

It could have been worse. Billabong came close to losing its third potential bidder in as many months after details of the latest offer were made public on Monday. Along with Wednesday's profit downgrade, this breached conditions of the offer from the consortium that consists of Mr Naude, New York-based Sycamore Partners, and Bank of America Merrill Lynch, which will arrange debt-financing if the proposal succeeds.

A letter from Mr Naude to Billabong on Wednesday afternoon confirmed the deal was still on the table despite the breaches.

"The Billabong board will be considering the proposal and its terms and will update the market as soon as possible," the company said in a second release to the ASX that day.

Credit Suisse analyst Grant Saligari said the bid "in hindsight, is quite well timed" but the price indicated "quite a substantial turnaround assumption" for Billabong.

Mr Naude, a 14-year veteran at Billabong who was overlooked in favour of Ms Inman, took leave to pursue a bid for the company last month.

Billabong said it cut its earnings forecasts for the year because of a weaker-than-expected performance in October and November in Europe and the Americas. The latter business was overseen by Mr Naude until last month.

The company now expects full-year underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be in a range of $85 million to $92 million, down from its previous forecast of $100 million to $110 million.

One-off costs are expected to lead to statutory EBITDA falling to between $53 million and $63 million for the year ending June 30.

This includes company transformation costs, expenses associated with assessing bids for the company, and a loss on its option to buy out the highly successful online retailer SurfStitch. The company could also incur impairments on the value of its assets.

Billabong said a review of all its assets would be conducted at the end of the month because of the sharp fall in the company's market value. This fell to as low as $354 million last month. It has intangible assets valued at $796 million.

Ms Inman presented a turnaround plan to the market this year, aiming for a return to sales growth in four years and EBITDA of $210 million. The company would not comment on Wednesday on the target, which is understood to be under review.

The bid from Mr Naude's consortium is the latest in a series of offers in the past year, punctuated by profit downgrades, a partial sale of a business, shop closures and job losses.