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Catherine Colbert

Billabong sells stake in Nixon following $823M TPG Capital offer

by Catherine Colbert | Dun & Bradstreet Editor

February 17, 2012 | No Comments »

As it works to breathe new life into its business by selling off assets, cutting jobs, and shuttering stores, Australia’s ailing apparel maker and retailer Billabong International was taken off task this week to entertain an offer from Texas-based buyout firm TPG Capital valued at A$765 million ($823 million).

Worth A$3 a share, the deal represented a 68% premium to the previous day’s closing price. It was also conditional on access to financial data, exclusivity, and Billabong putting the brakes on its asset sales.

Echoing the sentiments of brand-loyal surfers, Morningstar Sydney senior equity analyst Tim Montague-Jones shares his skepticism. “The TPG offer at A$3 is quite opportunistic when you consider the value of the business and the value of its brands,” he says.  “I don’t think they would sell at A$3 and it would have to be a lot higher than that.” While it crunched the numbers, Billabong requested a trading halt.

Meanwhile, today it was announced that private equity firm Trilantic Capital Partners has given a timely boost to Billabong’s bottom line. Trilantic inked the joint-venture deal to acquire a 48.5% stake in Billabong’s Nixon accessories unit, leaving Billabong with an equal share of 48.5% and Nixon founders and management with the remaining 3%. Trilantic was enticed to partner with Billabong based on the continued involvement of Nixon founders Andy Laats and Chad DiNenna. From the eleventh-hour agreement, Billabong anticipates netting $285 million in proceeds to pay down debt. The deal’s expected to be completed within 90 days.

The company is doing its best, despite declines in Australia and Europe, to continue to ride the wave of the sportswear business. Billabong serves surf, skateboard, and snowboard enthusiasts, outfitting them with apparel and accessories made under brands Billabong, Element, Von Zipper, Nixon, and Two Seasons, among others. The company sells its gear in specialty sport stores and through its namesake stores in more than 100 countries. Half of its sales come from the Americas; Australia and Europe bring in the rest.

Acquiring companies with strong brand names — the company’s strategy to grow its operations — has taken a toll on its balance sheet. One such purchase is Billabong’s 2010 all-cash acquisition of West 49. The leading action-sports retailer in Canada cost the apparel maker C$83.2 million (about US$73 million), but has helped to strengthen Billabong’s footprint in North America.

With Trilantic’s cash injection, Billabong plans to proceed with cutting some A$30 million from its costs by closing up to 150 stores globally.

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