Naude muddies the waters for Billabong

The board of Billabong might have believed that after two separate private equity approaches to the struggling swim and surfwear group were aborted its new chief executive Laura Inman might be given some clear water in which to execute her multi-year strategy for stabilising and turning around the company.

Not so. Billabong announced today that one of its directors and the president of its Americas business, Paul Naude, had told it he intended to stand down as both a director and executive while he investigated putting forward a leveraged buy-out proposal to the group. He is seeking talks with prospective financiers and equity participants.

Billabong has responded by agreeing to let Naude try to put his buy-out group together while putting some quite strict protocols around the kind of information he can make available to its potential participants and the contact he can have with Billabong's directors, staff and shareholders.

He is also precluded from having contact with Billabong's two previous private equity suitors, TPG and Bain Capital, both of which walked away after conducting due diligence on the company, in TPG's case quite extensive due diligence. TPG had made an indicative offer of $1.45 a share, valuing Billabong at $695 million.

With the exits of the private equity players it had appeared Inman would be left free to pursue a four-year restructuring that she believes could release more than $155 million of incremental earnings before interest, tax, depreciation and amortisation by 2016.

Billabong is a multi-brand, international wholesaler and retailer which evolved from its origins as a single-brand wholesaler without the management experience or the systems to manage that evolution. Inman, the former managing director of Target in Australia, proposes to vastly simplify the business and to put in place the platforms and global supply chain to support its international retail network.

The Naude development complicates those ambitions at two levels.

One is the obvious instability and distraction that being on the end of a third attempt at a buy-out within 12 months will create. Billabong has been destabilised by its performance and the private equity interest and doesn't need any further uncertainty as Inman tries to implement a delicate, complicated and very ambitious restructuring.

The other is that Naude, as head of the group's Americas business, is a key executive and one regarded as very important within both that market and the group overall.

If he fails to pull together the debt and equity for a buy-out, or even if he does but can't come up with a price the Billabong board can endorse, his position may well be untenable and Billabong will be forced into trying to replace a key member of its most senior team in the midst of the turmoil the restructuring will inevitably create.

The sliver of silver lining within the dark cloud that has again enveloped Billabong is the message that Naude's interest in a buy-out sends.

The market, probably correctly, interpreted the departures of TPG and Bain as indications that they thought Billabong's troubles were too deep and difficult to resolve, even with the three-to-five-year timeframes private equity usually adopts.

The fact that a highly-ranked insider with a privileged insight into the group's condition and prospects, particularly within the key US market, wants to have his own tilt at it says he, at least, believes there is a strong prospect of salvaging a lot more value than the 74 cents a share at which the group's shares were trading before his interest was disclosed.

If he can't put a buy-out group together at a price acceptable to Billabong, of course, the loss of a third suitor and a key executive would only add to the damage that has already been done to the group and its shareholders.