Billabong rushed to assure the market yesterday that TPG has not walked away from its $700 million offer after the company’s shares plunged on rumours the private equity firm is shelving its bid.
The surfwear retailer appears to be in danger of losing its second private equity suitor and was forced into a trading halt as shares dived by 20%.
”Billabong advises that TPG has confirmed that it has not withdrawn from the sales process,” Billabong said in a statement.
”As part of its due diligence investigations, TPG and its advisers have expressed concerns in relation to some issues. However, discussions in relation to those matters are continuing.”
The statement to the Australian Securities Exchange did not clarify what the issues were and also omitted any criticism of the $1.45-a-share offer price, which Billabong has repeatedly said does not reflect the company’s true value in the context of a change of control.
TPG first abandoned its pursuit of Billabong in February after the surfwear retailer’s founder and major shareholder Gordon Merchant rejected a $3-a-share offer, saying it undervalued the company.
Since then Billabong has suffered a net loss of $276 million and the closure of 82 stores, with even the appointment of new chief executive Laura Inman not enough to turn the tide.
Billabong’s share price briefly recovered when Bain Capital matched TPG’s offer last month, but the rival private equity group dropped out of the bidding after just two weeks of due diligence.
Brian Walker, chief executive of the Retail Doctor Group, told SmartCompany the problem is that both Billabong and its market are undergoing significant structural change.
“Billabong is a mature offer relative to their competitors and discount department stores have entered into their space,” he says.
“TPG is looking at it and fundamentally saying, ‘Does this business have a future and is it going to return on the investment in the period we want it to return?’”
Walker says although Billabong is a strong brand with a great footprint the retailer has suffered in the past few months.
“There has been the departure of the chairman and chief executive and then they have that odious business with Matthew Perrin and I think TPG is looking at it saying ‘Do they have confidence in the Board and in the chief executive’,” he says.
However, Walker also says that perhaps the rumours are part of TPG’s negotiation strategy.
“This could be part of the negotiation process as well. How many times do companies walk away from the negotiation as part of the tactic?,” he says.