Billabong’s deal to sell part of Nixon, its most promising brand, is a clever one. By selling a half-share of its watch brand to private equity firm Trilantic Capital, it will receive about US$285m. All of it will be put to repaying debt, effectively halving net debt from $526m to $259m.
It buys the company the one thing it didn’t have: Time. Without it, banking covenants would have been breached. Although the deal is still dilutive to earnings per share, shareholders have been spared the pain of a capital raising.