Dropping in: another bid for Billabong

Could we see a bidding war?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 6, 2012 12:30 pm AEST

After being an outcast for many years, struggling surfwear manufacturer, Billabong has suddenly become the most popular kid in school, with the news that two rival groups may be competing to take it over.

Billabong International (ASX: BBG) has today announced that it has received a second proposal from a different party, offering to buy all the shares in the company for a cash consideration of around $1.45 per share. That's the same amount proposed by private equity firm TPG International LLC, back on 24 July.

The board of Billabong have rejected this bid as well, saying it also undervalues the company. After reporting a $276 million loss for the 2012 financial year, Billabong has been under pressure to turn around its business and reduce its debt. The company recently raised $225 million in a capital raising and sold half of its Nixon brand for US$285 million. Net debt has fallen from more than $500 million to around $100 million.

Billabong has also announced that it is closing underperforming stores, reducing the number of unique styles from more than 25,000, and rationalising its suppliers – which currently number around 500.

The new bidder is apparently private equity firm Bain Capital – according to the Australian Financial Review, credited with turning around struggling companies in the consumer space. Whether a bidding war erupts will likely depend on the due diligence process both suitors are currently undertaking, and the view of majority shareholder, Gordon Merchant, with 15% of Billabong.

With many of Australia's retailers struggling and shares trading at close to all time lows, it could be fertile hunting ground for mergers and acquisitions. David Jones Limited (ASX: DJS) received a farcical bid back in June, with some market commentators still wondering if that was real or not.

Others in the retail space could be potential targets, including OrotonGroup (ASX: ORL), which recently lost its exclusive licence to sell Ralph Lauren products from July 2013, and Noni B Limited (ASX: NBL), which is in the process of turning its struggling operations around.

The Foolish bottom line

A higher bid for Billabong is much more likely, now that there are two bidders in the game. But there's no such thing as a free lunch, and one or both of the bidders could easily pull out, which could see the share price plummet – which is a warning about gambling on a potential higher bid.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King owns shares in OrotonGroup. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.