Billabong International

The Paul Naude/Sycamore consortium has made a non-binding offer to acquire Billabong International for 60 cents per share, nearly half the $1.10 mooted in January and 45% below our recommendation price from Sun rises on Billabong wipeout from 09 Jul 12 (Speculative Buy – $1.09).

In addition to the cash offer, shareholders can potentially maintain their stake in the company once it delists provided acceptances don’t exceed 24.9% of the company’s shares. While this option might not be very popular amongst individual investors, key shareholders Gordon Merchant and Colette Paull have accepted it. More details on this option are expected after 24 April 2013, but their combined 16% stake could mean other investors are scaled back severely and forced to accept cash.

The company’s recent results were worse than expected (see Billabong fights big swell from 18 Mar 13 (Speculative Buy – $0.84)), which has reportedly spooked Billabong’s lenders and produced lower bids. If the bid fails the company could be forced to raise capital, which is partly why the board is expected to support the deal.

If the deal succeeds it will be a lousy result. Chief executive Launa Inman had outlined a sensible turnaround plan that we believed could’ve significantly increased profits given the business had been colossally mismanaged, but it’s unclear if she will get the chance to implement her plan.

While we still believe the company is worth more than today’s price we don’t recommend doubling down. The share price has fallen 26% since 21 Mar 13 (Speculative Buy – $0.73) and, for now, we’re downgrading to HOLD. We're not providing a recommendation guide due to the fluency of the situation.

Note: The Growth Portfolio own share in Billabong International.