The parent company of surf and extreme sports brand Quiksilver, Boardriders Inc., has made a takeover offer to Australian counterpart Billabong International Ltd. (ASX:BBG), driving the target’s stock price up as much as 23.1% to AUD 0.96. Boardriders Inc. is offering AUD 198 million in cash, equivalent to AUD 1 per share, a 28.2% premium over the latter’s 30-day closing price of AUD 0.78. Back in early 2012, private equity firm TPG Capital Management had proposed to acquire Billabong International Ltd. for AUD 850 million.
Billabong International Ltd. issued a statement today saying it will open its books to Boardriders Inc., with due diligence expected to begin within weeks. The group will update shareholders on progress in due course.
Both Billabong International Ltd. and Boardriders Inc. (formerly Quiksilver Inc.) have seen declines in recent years due to waning interest in extreme sports, intensifying competition in the sportswear industry, and poor management leading to heavy debt. Billabong International Ltd. had to secure emergency funding in 2013 and, despite restructuring, has continued to post losses in the past two years, with only the 2015 fiscal year showing a profit in the last six. Quiksilver Inc.’s U.S. operations even filed for bankruptcy in 2015, and after restructuring to reduce debt and emerge from bankruptcy protection in February 2016, the company was renamed Boardriders Inc. in March this year.
Both Billabong International Ltd. and Boardriders Inc. have connections with Los Angeles-based private equity firm Oaktree Capital Management LP. In 2013, Oaktree Capital Management LP, together with Centerbridge Partners LP, provided Billabong International Ltd. with USD 360 million in financing over six years in exchange for a 33.9%-40.8% stake, and currently holds about 19% of the shares, making it one of the latter’s largest preferred creditors. In Quiksilver Inc.’s bankruptcy restructuring, Oaktree Capital Management LP, also the largest preferred creditor, converted debt into equity to acquire over 90% of the group’s shares, reducing Quiksilver Inc.’s USD 826 million debt to less than USD 300 million. At the time, there were reports that Oaktree Capital Management LP intended to merge Billabong International Ltd. and Quiksilver Inc.
Billabong International Ltd. currently focuses on its three major brands: Billabong, Element, and RVCA. In February this year, the group sold Australian premium swimwear brand Tigerlily to local private equity firm Crescent Capital Partners for AUD 60 million. Boardriders Inc. includes businesses such as Quiksilver, Roxy, and DC Shoes. Over the past two years, the group has cleared over USD 90 million in excess inventory, streamlined distribution channels, closed stores to cut costs, and while restructuring expenses have kept it from turning a profit, it is now close to breaking even.
Boardriders Inc. Group President Greg Healy revealed in an interview with The Australian earlier this year that Quiksilver Inc.’s sales last year dropped by at least USD 150 million from USD 1.36 billion in 2015, but profitability improved significantly. Efforts such as reducing promotional discounts, exiting some licensed categories, and streamlining distribution channels helped lift the core profit EBITDA margin from zero to 5%, approaching the short-term target of 7%; orders also recorded growth for the first time in many years.
Billabong International Ltd. achieved total sales of AUD 974.7 million in the 2017 fiscal year ended July 30, down 6.7% year-on-year in constant currency terms, with continued declines in all three major markets—Americas, Asia Pacific, and Europe. However, same-store sales overall rose by 0.1%, and e-commerce sales surged by 22%. Adjusted core profit EBITDA rose 2.8% year-on-year to AUD 51.1 million, but pre-tax losses more than tripled from AUD 15.9 million in the 2016 fiscal year to AUD 67.4 million.
Billabong, Quiksilver, and Rip Curl are the world’s three major surf and extreme sports brands. Earlier this week, Australian media reported that Billabong International Ltd., which also owns brands such as Von Zippers, Palmers Surf, and Xcel, has withdrawn its bid for Rip Curl.
In September this year, market sources said founders of Rip Curl, Brian Singer and Doug Warbrick, have hired U.S. boutique investment bank Robert W. Baird & Co. Inc. and local firm Gresham to handle the sale. Four years ago, Rip Curl also engaged Bank of America Merrill Lynch to seek a buyer, but reportedly none of the offers met the expectations of Brian Singer and Doug Warbrick—AUD 470 million, equivalent to 10 times the company’s 2013 EBITDA.
Rip Curl’s operations, performance, and financials are all stronger than those of Billabong International Ltd. In the 2017 fiscal year, Rip Curl recorded sales of over AUD 1 billion and an ongoing business profit of AUD 51 million.
The market speculates that Oaktree Capital Management LP, Sycamore Partners, Altamont Capital Partners, and VF Corp. (NYSE:VF) may all be interested in Rip Curl.