Billabong to disappear after 60 cent bid?

Sycamore Consortium offers 60 cents a share

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 April 9, 2013 4:53 pm AEST

Surf wear maker Billabong International (ASX: BBG) has confirmed media reports, today announcing that it had entered into discussions with Paul Naude and Sycamore Partners, after the consortium offered 60 cents a share for all of Billabong. The consortium had previously offered $1.10 a share.

The Sycamore Consortium has also offered shareholders the option of taking scrip in a Sycamore company (NewCo), instead of taking the cash, if they want to retain a stake in the turnaround of Billabong. However, strict conditions mean that if scrip elections exceed 24.9% of the NewCo shares, the applications will be scaled back pro rata.

At least 15% of Billabong's shares must elect to receive scrip in NewCo, and the company's founder and largest shareholder Gordon Merchant, along with Colette Paull and their families which hold 16% of Billabong, have confirmed that they will elect to receive scrip consideration. That means that if more than 10% of Billabong's minority shareholders elect to receive scrip in NewCo, all applications will be scaled back.

Billabong has now entered an exclusive 10 business day period of exclusivity with the Sycamore Consortium, to allow it to engage an accounting firm to complete a confirmatory quality of earnings analysis.

While the Billabong board have negotiated a Scheme Implementation Deed, there's no guarantee that the bid will still proceed. It appears that the board of Billabong support the 60 cent bid, but that is yet to be confirmed.

The other factor to take into account is the views of shareholders. Billabong's lowest ever share price is 63 cents, while at once stage it traded at over $22. Many shareholders are unlikely to support a takeover bid at this price, despite the dismal performance of the company over the past few years. With new managing director Launa Inman only appointed in May 2012, shareholders may elect to give Ms Inman a chance to turnaround the company and implement the turnaround strategy she outlined last year.

Foolish takeaway

The Billabong saga is far from over, expect more ructions before the surf wear icon disappears from the ASX.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Billabong.

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