MARKETS SPECTATOR: The 60 cent question

Billabong’s 60 cent a share bid is cold comfort for investors who were eyeing something nearly sixfold last year.

The dire condition of Billabong’s business may only be matched by the black mood of the company’s investors following a statement today that Billabong had entered into a 10-day exclusive negotiating period with Sycamore Corp, who have made a 60 cent per share offer for the clothing company.

Former Billabong executive Paul Naude and New York buyout firm Sycamore Partners’ offer for Billabong is an 18 per cent discount to where Billabong’s shares last traded and a whopping 59 per cent discount to what another private equity firm, Texas Pacific Group, offered for the Gold Coast-based company in July.

Incredibly, TPG was offering as much as $3.30 a share for Billabong in February last year.

Billabong co-founder Gordon Merchant’s boast he wouldn’t sell the company for less than $4 a share now looks as hollow as his company’s immediate prospects.

It is hard to see what Sycamore and rival bidders Altamont Capital Partners and VF Corp see in Billabong. The company’s decision to go beyond surfwear and offer a dizzying array of clothing through a plethora of stores has resulted in margin erosion, a contraction in sales and a $536.6 million net loss in the six months to December 31, 2012. Sales fell 17 per cent in the same period to $699.6 million.

If Sycamore’s takeover proceeds, the new Billabong is likely to be a pale shadow of its former self.

It may be true to its heritage, focused on the surf. Perhaps out of the spotlight of the public market, Billabong can thrive if the new owners invest as well as run a beady eye over expenditure with a management team that offers a product mix that appeals to the 'beach bum' and young hipsters. 

But for the suffering Billabong shareholders it has been a ride that has gone horribly wrong.