Billabong shares wiped out, down 15% as TPG withdraws $694 million bid

Billabong shares have plummeted 15% this morning to a record low after it confirmed TPG will withdraw its bid for the company in a move that is set to disappoint shareholders who were holding on to the prospect of a deal.

Now, experts say it will be a long road to recovery as the management team continues to follow its restructuring plan made public earlier this year.

Shares were trading at just 85 cents this morning at 11.45 AEST, after the announcement was made, well below the TPG offer of $1.45 per share.

It comes just days after the company said TPG had not walked away from its proposal.

“There’s going to be a transition now,” Peter Esho, chief market analyst at City Markets, told SmartCompany this morning.

“Those holding the stock were waiting for a takeover and speculating on that takeover. That is a very different investor to a person who’s willing to wait for management to spend time proving this is a valuable brand worth buying.”

This is now the second private equity firm to reject Billabong in a matter of weeks. A second suitor, Bain Capital, put forward a bid but ultimately rejected an offer.

Billabong said in a statement the $1.45 cash per share offer had been withdrawn by TPG and discussions have ceased. It will continue to go ahead with its transformation strategy released in August under chief executive Launa Inman.

“The board is pleased with the progress around implementation of the transformation strategy and structural organisation change being driven by CEO Launa Inman,” chairman Ted Kunkel said in the statement.

But whether they can follow through with this plan is a different story.

WHK partner David Gordon says the company is clearly in “a bit of strife” and suggests there are plenty of paths the company could follow.

“Maybe what they ought to do is just go back to basics and sell as a brand. Quiksilver doesn’t have many stores any more, except for a few as a branding exercise.”

“Maybe they ought to just provide their product to stores and that sort of thing.”

Chocolate and confectionary maker Darrell Lea took a similar path earlier this year after it fell into administration. The company was saved, but the new management has decided to scrap retail stores in favour of keeping the manufacturing business alive.

The Billabong structural review will see it slash suppliers by 35%, and focus on cutting the company’s range by 15% and extracting more revenue out of fewer, more popular, products.

Peter Esho says the company still has a viable opportunity, given the restructuring program focuses on the basics.

But it also means investors will need to be very patient.

“You have a different kind of investor now. You’re exchanging from an investor wanting this deal to someone who is looking in the long term.”

“I don’t think you could have attracted the chief executive it has now unless there’s some sort of credible plan to commit to restructure. But as to the result or the ability to do so, the jury is still out.”

Given private equity is off the table, Esho says Billabong is now playing “a long-term game”.

“It’s a long-term game that could have big reward – but investors need trust and patience. Trust will only develop over a long time.”



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