Billabong International

US private equity group TPG has returned, launching a new $1.45 per share bid for Billabong International, valuing the company at around $800m (including debt). This comes just four months after Billabong’s directors rejected TPG’s $3.30 per share, or $1.2bn, bid for the company. Knocking back the original offer was clearly a mistake in view of the company’s recent—and highly dilutive—capital raising.

This time the bid is more likely be endorsed by the board. Ideally the directors should squeeze a few more cents per share out of TPG before recommending it. An offer of between $1.40-$1.60 per share is a fair price for Billabong, which still faces a difficult and risky turnaround.

Other key shareholders, Colonial and Perennial (which own around 20%), have already given in-principle agreement to the deal. Gordon Merchant—Billabong’s founder and a 15% shareholder—also seems unlikely to block it following his public declaration that he would welcome new bids. TPG has offered him a sweetener to roll his existing shareholding into the new vehicle, which will allow him to participate in any upside under TPG ownership.

At this stage shareholders needn’t do anything. With Billabong’s share price rising 21% since Sun rises on Billabong wipeout from 09 Jul 12 (Speculative Buy – $1.09) we’re downgrading a notch to HOLD as we let the takeover process unfold.