Billabong International
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Yet another private equity proposal has fallen over, with TPG officially withdrawing its conditional proposal to acquire Billabong International for $1.45 per share. Billabong’s share price has since fallen 16%, as those betting on a deal getting done rush the exits. Though we wouldn't rule out another suitor coming along, shareholders are currently at the mercy of management's turnaround plans announced in August. Our 'speculative buy' recommendation has always been a bet that a sensible strategy could produce large capital gains over the next four or so years, with any attractive takeover bid simply a bonus. Billabong has done so much wrong over the past five years that with a decent amount of sales to work with, even an average manager should be able to salvage a decent amount of value from today's price.
That said, turnarounds—especially in retail—are risky. The portfolio limit remains unchanged at 2% and we look forward to hearing more about why TPG baulked at acquiring Billabong in the coming weeks as the details leak to the media. If you haven't already, we highly recommend reading Sun rises on Billabong wipeout from 9 Jul 12 (Speculative Buy – $1.09) before following this recommendation. We'll publish a full analysis of management's turnaround strategy in due course. With the share price falling 22% since 5 Oct 12 (Speculative Buy – $1.08), we're sticking with SPECULATIVE BUY.
Note: We're adding 3,000 shares to the Growth portfolio at $0.847 per share for a total cost of $2,541.
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