The ink is barely dry on TPG's reduced bid for Billabong International, but one commentator has already moved on to what she expects to be the next big retail bargain buy: David Jones. Is Solomon Lew circling? Meanwhile, others identify the winners and losers at Billabong, and speculate about where rival bids might surface. There are also questions this morning about Deloitte Access Economics' latest prediction that the mining boom will end in two years, considering the forecaster's poor track record.
But first, Fairfax's Elizabeth Knight says TPG's bid for Billabong shows that cheap companies – no matter how troubled – will usually attract suitors. Attention is now said to be narrowing on David Jones and its appeal to corporate bargain hunters, including Solomon Lew.
"The speculation has gained some intensity thanks to the fact that former David Jones chief executive Mark McInnes appears to be getting the old David Jones band back together under the Lew umbrella of Premier and his retail engine, Just Group.
Two of the major planks in the old David Jones management team, McInnes and Colette Garnsey, are now with Lew. Talk that former finance director Stephen Goddard is heading to Premier as well has been denied. A bunch of other executives have also joined the Lew/McInnes team but they are less senior. However, the management jigsaw pieces are now in place for Lew to take a tilt at David Jones if he takes the view that the price is right. Lew has been very quiet of late on any aspirations he might have towards the grand dame of department store retailing. At no stage has he denied his interest, instead he has talked about timing and price."
Now back to the deal at hand. The Australian's Richard Gluyas was annoyed to see details of TPG's offer published – in The Australian Financial Review, we note – before Billabong announced it to the market. The same thing has happened before at least four private equity bids since November, he says.
"When details of an approach are published in the media, often after the bidder has been frog-marched out the door by an angry chairman, it triggers disclosure obligations, leading to shareholder pressure to engage with the suitor. For private equity, the objective is risk-free due diligence, without putting a binding offer on the table. … The bear hug becomes more effective when target boards get besieged by shareholders after they read media reports that institutions have committed to conditional share-sale agreements. It creates the appearance of momentum in favour of the bidder."
In the same newspaper, John Durie outlines the remarkable value destruction at Billabong under chairman Ted Kunkel.
"If you owned 10 per cent of the stock or 25.8 million shares back in February, the first TPG offer at $3.30 was worth $85.1 million. Then Kunkel hired Launa Inman and had a $225 million equity raising, which meant that to maintain your position you needed to spend another $22.1 million. You now own 47.9 million shares valued at $69.5 million based on the $1.45 offer price but after deducting the $22.1 million rights payment your stock is really worth $47.4 million. The same position was worth 44 per cent more five months ago. How’s that for a kick in the teeth from the Billabong board."
But Durie's colleague, Tim Boreham, notes one group of Billabong investors still stands to gain from TPG's lower offer.
"The winners from the saga are the brave retail holders who subscribed for 51 per cent of the retail component of the raising, at $1.02 a pop. The bigger winners are underwriters Goldman Sachs and Deutsche Bank who soaked up the remaining 49 per cent."
Also on the topic of Billabong, The Australian Financial Review's Chanticleer columnist, Tony Boyd, says the deal will be on the corporate regulator's radar after the target's share price surged last week, well before TPG's new offer was announced.
And Fairfax's Adele Ferguson relays speculation about a rival bid by VF Corporation.
Elsewhere, Fairfax's Michael Pascoe revisits yesterday's dire forecast by Deloitte Access Economics that the resources boom will be all over in two years and that the federal budget surplus is no more.
"Trouble is, it seems Access has been forecasting the imminent demise of the aforementioned boom almost since it started. Who knows, maybe this time they will be right. By the nature of booms, one of these years they have to be, but the timing is rather important. … Turns out the forecast of the boom ending in 2014-15 is actually a 12-month extension on a 2010 forecast that the boom would fizzle next year."
None of this seems to frighten mining entrepreneur Joseph Gutnick. The Australian's Barry Fitzgerald runs an eye over the former Melbourne Football Club president's latest plan to float his phosphate explorer-developer Paradise Phosphate.