The board of ailing surfwear group Billabong International has opened its books to rival Quiksilver Inc after receiving a confidential, indicative and non-binding proposal which values the company at nearly $200 million.
Quiksilver earlier this year changed its corporate name to Boardriders Inc, which has offered $1 cash per share via a scheme of arrangement. Billabong shares closed yesterday at 78¢ each.
US-based hedge fund Oaktree Capital Management controls more than 90 per cent of the shares in Quiksilver and took the company private in 2016 after a $US600 million ($853 million) refinancing plan.
Two years prior, it emerged with a 19 per cent stake in Billabong following a similar $350 million refinancing of the Gold Coast-based company. Oaktree is also one of Billabong’s two senior lenders. Centerbridge Partners is the other major Billabong shareholder, part of the Oaktree consortium. As at June 30, the senior secured term loan facility provided to Billabong was $223.9 million ($US172.2 million).
Oaktree has long been rumoured to be exploring a merger of the two iconic retailers, which are leading players in the $19 billion global action sports market, as part of its longer term turnaround plan.
Billabong in a statement to the ASX said the indicative proposal is subject to a number of conditions, including due diligence; securing committed financing; unanimous recommendation from the Billabong board; and entry into a definitive scheme implementation agreement between the parties.
Any scheme implementation agreement would also be subject to a number of further conditions, including shareholder and court approvals, it added.
The Billabong board led by Ian Pollard said that there is no certainty to the process or the indicative offer will result in a formal offer for the company.
“Billabong shareholders do not need to take any action in response to the indicative proposal at this time,” it said.
“The company will update shareholders, in accordance with the company’s continuous disclosure obligations, in due course.”
Quiksilver was founded in Victoria’s Torquay almost 50 years ago by Alan Green and John Law, who started making board shorts in their garage, while Billabong is another local brand founded by Gordon Merchant in 1973.
Four years ago Billabong boss Neil Fiske embarked on a turnaround program but progress has been slower than anticipated.
Sales and earnings have been impacted by currency swings that increased product costs, the collapse of a number of major US wholesale customers and more recently a weak Australian retail sector.
The company posted a major non-cash impairment charge of $106.5 million, mostly related to goodwill and brands, pushing its net loss to $77.1 million. Its net loss before tax was $8.4 million (excluding significant items and discontinued businesses).
Billabong’s brands outside its namesake are RVCA, Element, Von Zipper, Honolua, Xcel, Kustom and Palmers. It employs more than 4,000 people and its products are available across 100 countries.
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