Surfwear giant Billabong International has confirmed it could sell out to US private equity group TPG Capital, following dire group results for first half of the 2012 fiscal year.
The company, which also owns retail businesses Surf Dive 'n' Ski, Jetty Surf, Rush Surf, Surfection and Co-Op Surfection in Australia, received a takeover bid from TPG Capital this week, to acquire all of the shares in the company for $3.00 cash per share by way of a Scheme of Arrangement.
In a company statement, Billabong said the approach was a non-binding, indicative proposal from TPG Capital and currently subject to due diligence, finance and conditional on a number of other matters.
However, the company said the proposed takeover does not preclude the planned sale of a stake in its Nixon brand, announced late last week.
Billabong, which acquired the Nixon brand in 2006, has now entered into definitive agreements with Trilantic Capital Partners (TCP) to establish a joint venture to accelerate the growth of the Nixon brand globally.
Under the agreement, Billabong and Trilantic will each hold approximately 48.5 per cent of Nixon, a leading brand in the youth accessory market, and management will purchase the remaining 3.0 per cent stake. Billabong said it expects to realise net proceeds of approximately US$285 million as a result of the transaction, all of which will be used to repay debt.
The deal follows lacklustre half year sales results for the Billabong empire, with the company recently reporting a 71.8 per cent dive (AUD terms) in net profit after tax, to $16.1 million for the six months ended December 31, 2011.
Billabong International CEO Derek O'Neill said the figures reflected the continued appreciation of the Australian dollar (AUD) against the group's operating currencies, in particular the Euro and US dollar (USD), and a difficult trading period in general, impacted further by a highly promotional retail environment.
O'Neill also confirmed several changes to come for the Billabong business, in the wake of its half year results.
“Prior to the close of the half year, the group announced a strategic capital structure review of its business, focused on initiatives to strengthen the group's balance sheet. This review has resulted in initiatives which include the partial sale of Nixon, a review of the group's retail network with a view to closing loss-making stores ans stores performing below expectations, a cost-cutting program; and a reduced dividend and fully underwritten dividend plan,” he said.
O'Neill added that while the group had expected to deliver earnings before interest, tax, appreciation and amortisation (EBITDA) of approximately $157 million for the 2011-2012 financial year, the restructure could alter future results significantly.
“The outcomes of the review will significantly strengthen the company's financial position and the group's expected results for the 2011-2012 financial year will be materially affected by the above initiatives. It is not possible to calculate the impact at this time,” he said.
Billabong also confirmed that the restructure could see up to 150 loss-making and underperforming stores shut-down, which could result in almost 400 job cuts across its global; retail network, with approximately 80 of those job losses in Australia.
For news on how Billabong-owned retail venture Co-Op Surfection is forging ahead despite these changes, pick up a copy of Ragtrader's March print edition - out February 24.