TPG Makes Informal Offer for Billabong

TPG Capital has approached Australian surfwear group Billabong International with an informal offer to buy it, writes Reuters. The Australian Financial Review newspaper earlier said Billabong Chairman Ted Kunkel received an offer of at least A$3 ($821 million) a share from TPG on Tuesday.

Reuters – Private equity group TPG Capital has approached Australian surfwear group Billabong International with an informal offer to buy it, sources said, in an opportunistic move to cash in on its languishing shares.

The Australian Financial Review newspaper earlier said Billabong Chairman Ted Kunkel received an offer of at least A$3 a share, or $821 million, from TPG on Tuesday.

Billabong joins a lengthening list of companies down under that have been targeted by private equity after sharp share price declines, as the non-mining sectors of Australia’s economy struggle under a strong currency, relatively high interest rates and indebted consumers.

Australian retailer Pacific Brands, industrial services firm Spotless and paper manufacturer PaperlinX have been eyed similarly.

Banking sources, who had direct knowledge of the matter, told Reuters that TPG is still busy securing funding, with no commitments yet. The sources spoke on condition of anonymity as the talks are still at an early stage.

TPG may have approached Billabong with a non-binding offer subject to financing, one banking source said, while another said exploratory talks were underway but nothing formal was yet on the table. “It’s early days,” said a source at a bank that was approached by TPG.

A formal bid for Billabong would only emerge after U.S.-based TPG has conducted due diligence on the company and secured bank financing, the banking sources said.

“There remains uncertainty regarding a formal offer emerging, and we note that some other stocks in the retail sector that have received private equity interest have not yet received formal bids,” JP Morgan analysts said in a note.

Billabong is being advised by Goldman Sachs while Macquarie is one of the advisers for TPG .

TPG , Billabong and its major shareholder Perennial all declined to comment.

OPPORTUNE TIME

Billabong’s first-half net profit is expected by analysts to fall by more than half to around A$25 million after a rapid drop in sales in November and December. In a December profit downgrade, the firm said European sales declined sharply from November, while unusually cool weather in Australia also saw local sales fall.

Shares in Billabong, which reports first-half earnings on Friday, last traded at A$1.79, down from over A$9 in February a year ago as its main markets, Europe and the United States, have grappled with weak economies.

The retailer placed its shares on a trading halt earlier, saying it planned an announcement on a strategic capital structure review that was first announced in December.

“If the reports are correct, private equity has approached at an opportune time given the share price factors in the risk of a capital raising,” Citi analysts said in a note.

Several private equity firms have been looking at a possible takeover of Billabong, which earns around two-thirds of its sales offshore, since it appointed Goldman to review its capital structure, the newspaper article said.

Analysts at Bank of America Merrill Lynch said Billabong needed more than a balance sheet restructuring.

“The earnings and financial risks for this company are increasing. Not only are earnings falling at an accelerating rate, but the company is rapidly consuming cash,” Bank of America Merrill Lynch said in a report.

“While a capital injection may be a short term reprieve, we believe it is unlikely to improve Billabong’s underlying structural issues or strategic position,” it said.