THE DISTILLERY: Alternative Billabong

Billabong International shareholders now have a decision to make. Do they run with chief executive Laura Inman's turnaround strategy, which some commentators see some real value in, or leave that potential upside for a generous suitor? The surfwear company's structure is too complicated, to be sure, but does the register have the patience to unravel it with TPG Capital lurking?

Fairfax's Malcolm Maiden equates the quandary that shareholders have to the old saying that it's a ‘bird in the hand, two birds in the bush'.

"TPG's takeover will, if confirmed, give them a way to avoid renovation execution risk, and at $1.45 a share it also offers them a pre-renovation payment: the offer was pitched last month at a 32 per cent premium to Billabong's share price of $1.10 at the time. Deployment of the Inman plan would offer shareholders 100 per cent of the renovation upside, but they would also be taking on all of the renovation risk. Inman heads a new team, but after a rough ride many shareholders will be attracted to the bird in the hand. A middle course would see TPG pay more to get the board's backing, which is essential in scheme-of-arrangement acquisitions. The size of the sweetener would be a matter for debate, but one thing is clear: now that it has a plan of its own, Billabong is not going to accept $1.45 a share.”

Business Spectator's Stephen Bartholomeusz points to a slide in Billabong's presentation that demonstrates how the company's inefficiency's can be cleared up for profit.

"It is a slide with three components, looking at cumulative global sales by style, global cumulative sales by customer and cumulative purchases by supplier. It shows that 34 per cent of Billabong's styles generate only 1 per cent of its sales; 33 per cent of its customers generate 1 per cent of its sales and 1 per cent of its purchases come from 46 per cent of its suppliers. That a lot of unproductive activity. Inman plans to cut 15 per cent of the styles and 35 per cent of the suppliers. The fact that it is an obvious thing to do and will make the business a simpler one gives it credibility. The bigger gains, and the more difficult ones to assess, relate to leveraging both the Billabong brand and the other brands within the portfolio, improving the performance of the retail network, globalising the Billabong supply chain and building an e-commerce platform. The biggest gains relate to the brands and are dependent on retailing skills and insights.”

With Bartholomeusz running through the internal numbers, The Australian's Richard Gluyas looks externally at Billabong's position in the market and where the brand can sit.

"Inman is adamant that brand Billabong is underused and still has lots of potential. It's all about ‘stretching' it beyond the board-sports fanatics and participants, which account for 19 per cent of the market, to a broader 34 per cent who like the brand and lead active lifestyles. Unlike Element, Dakine and RVKA, which have low brand awareness but a high conversion into sales, Billabong's problem is the reverse – huge awareness but a relatively low conversion rate. The challenge is to make the brand more mainstream without sacrificing its core value of still being vaguely ‘cool'. Investors have to be convinced that Inman can do the job, or it becomes a challenge for private equity.”

The Australian Financial Review's Patrick Durkin reports that some shareholders weren't impressed with some of the remuneration details for Inman and her predecessor Derek O'Neill that Billabong's annual report revealed.

"The payout comes despite the surfwear company recording a new loss of $275.6 million for the full year and Mr O'Neill failing to hit his performance targets. The company also revealed it had signed new chief executive and former Target boss Launa Inman to a $3.32 million contract, including paying her $252,000 for her first month-and-a-half in the role.”

Durkin also says that some Toll investors were puzzled by the payout to former chief executive Paul Little, given the dive in the company's profits. It should be said that Little commanded an enormous amount of respect industry wide during his tenure. Regardless, The Australian's John Durie says Toll doesn't have much to show for his turnaround strategy except the enduring confidence of management, after the company reported a mixed set of numbers.

And The Australian Financial Review's Chanticleer columnist Tony Boyd carries an important story this morning for big corporates worried about the pitfalls of Twitter.

"In the CBA case, a senior executive of subsidiary Bankwest was impersonated by an unknown person who was tweeting increasingly inflammatory material. CBA's general counsel and head of corporate affairs, David Cohen, said if the material had been published in an outlet owned by Fairfax Media or News Ltd, an injunction would have been issued and the perpetrator tracked down. But because it was Twitter, CBA had to follow a costly and complex process for having the false Twitter account shut down and the tweets removed. Cohen says the material was slanderous. Adding a suitable dark twist to the incident, Twitter refused to tell CBA who was behind the identity theft because it would have been a breach of its privacy rules. In other words, it is possible to steal someone's identity and attack the institution they work for and get away with it.”

In other big company news from yesterday, The Australian Financial Review's Matthew Stevens argues that BHP Billiton's exit from the Yeelirrie uranium deposit is a good thing for just about everyone except environmentalists.

Fairfax's Ian Verrender looks at the potential collapse of a merger between Glencore International and Xstrata, while Insider columnist Ian McIlwraith says Sirius Resources shareholders that took up a share placement last week are smiling after some encouraging drilling results from the company's Nova site in Western Australia.

More broadly, Fairfax's Michael Pascoe argues that the predictions of doom and gloom for this reporting season have really come to fruition.

Tim Colebatch reports that the consensus emerging from the Victoria at the Crossroads conference indicates that short-term pain for long-term gain could be the state's destiny, depending the following factors: the Australian dollar, levels of infrastructure investment and productivity gains.

And in politics, Fairfax's Phillip Coorey examines how Opposition Leader Tony Abbott has been forced to distance himself from former Prime Minister John Howard, his political mentor, on issues ranging from industrial relations, the GST, the carbon tax and the broader economy. The Australian Financial Review's Laura Tingle says it's a significant event for someone who once described himself as the political lovechild of Howard.