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Matthew Smith has been a business and financial journalist for more than a decade. He previously worked with the Financial Times Group, reporting from New York on company buyouts and refinancing in the wake of the Global Financial Crisis. He started his career reporting on the funds management industry in Sydney.

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Billabong calls trading halt with announcement imminent

Published 02 April 2013 10:55, Updated 03 April 2013 07:34

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Billabong calls trading halt with announcement imminent

Billabong has been caught up in acquisition talks for more than a year, but it is believed to be very close to announcing a successful bid. Photo: Troy Brooks/ASP

The epic tug-o-war between beleaguered surf wear brand Billabong International and private equity suitors has almost reached a conclusion, with an announcement regarding the Gold Coast company’s future expected shortly.

Two potential suitors: Altamont Capital Partners/VF Corp and a consortium comprising the head of Billabong’s Americas division, Paul Naude, Sycamore Partners Management and Bank of America Merrill Lynch, were still in the running on Tuesday to buy the company, the company told the ASX in an announcement.

The acquisition would end more than a year of failed buy-out attempts and share price dips since a $3 per share bid by US private equity firm TPG in February 2012.

Billabong’s share price has steadily declined from more than $11 per share as recently as 2010, to be trading around 73¢ when its shares were put into a trading halt after the Easter long weekend. Billabong cited an article in The Australian Financial Review which indicated that a deal announcement was imminent, as well as a Credit Suisse research note, as reasons for significant trading in its shares before the halt.

The company’s sharemarket troubles began after an earnings downgrade at the end of 2011 and a subsequent strategic review, which led to the sale of its accessories brand Nixon. Following a dilutive $225 million capital raising in July, the company’s board rebuffed competing $1.45 per share bids from TPG and rival private equity firm Bain Capital, choosing instead to pursue a “transformation plan” outlined by chief executive Laura Inman as a way for the company to reinvigorate its ailing brand and compete with fast fashion retailers.

Outdated technology systems and a brand that has been increasingly watered down from its high-performance surfing roots are blamed for the Gold Coast company’s struggle to maintain revenue and deliver sharemarket returns in the challenging retail market.

While it is unclear what Billabong will look like in the hands of private equity owners, reports suggest the VF Corp consortium has said its only interest is in the Billabong brand, while Altamont is believed to be interested in acquiring the rest of the business, including the vast retail network.

Credit Suisse’s assessment, on the basis that bids fail to materialise, attributed a weighted valuation of 59¢ per share to the company based on a “downside scenario” in which EBITDA declines from current guidance of $74 million this year to about $50 million in the 2015 financial year.

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