BBG - Billabong International

skc · 25 June 2012

skc said:
And here comes the trading update.

FY12 EBITDA = $83-88m so ~good 25% below the guestimates above. US as per expectation, but Oz and EU suffering as expected.

A massive 6-for-7 cap raising at a GFC-type distressed price of $1.02. TERP = $1.46 but hard to see it not trading below that on the open. It "should" stay above $1.02 one would hope.

BBG opened @ $1 and fails to stay above the heavily discounted issue price.

Price now is 94c...

If one is to believe management forecast of EBITDA ~$130m in FY13... the shares at current price are cheap (but we've heard that before!). After the rights issue there'd be ~480m shares on issue, and debt ~$100m. So at 94c, EV ~$550m. EV/EBITDA multiple is only 4.23x... compare that with the Nixon transaction which was done at ~9.2x. So the numbers are there, but the market's trust of BBG hitting forecast is probably non-existence.

Regardless of the fundamentals, there's probably a quick long trade at 94c for price to head back up to $1, with a stop at 92c.

verce · 25 June 2012

skc said:
BBG opened @ $1 and fails to stay above the heavily discounted issue price.

Price now is 94c...

If one is to believe management forecast of EBITDA ~$130m in FY13... the shares at current price are cheap (but we've heard that before!). After the rights issue there'd be ~480m shares on issue, and debt ~$100m. So at 94c, EV ~$550m. EV/EBITDA multiple is only 4.23x... compare that with the Nixon transaction which was done at ~9.2x. So the numbers are there, but the market's trust of BBG hitting forecast is probably non-existence.

Regardless of the fundamentals, there's probably a quick long trade at 94c for price to head back up to $1, with a stop at 92c.

Well said. Here's another interesting article:

http://www.smh.com.au/business/who-will-pounce-on-billabong-first-20120625-20xeu.html

"Speculation is rife that within the next two to four weeks private equity and a trade buyer will emerge. Names being touted include TPG, KKR and Archer, but the list could be far greater given this company still has some strong brands, it has just lost its way. Trade buyers with an interest are believed to include Nike and French luxury group PPR, which bought Volcom Inc, the Costa Mesa surf-and-skate brand, last year for $US607.5 million."

McLovin · 25 June 2012

verce said:
Well said. Here's another interesting article:

http://www.smh.com.au/business/who-will-pounce-on-billabong-first-20120625-20xeu.html

"Speculation is rife that within the next two to four weeks private equity and a trade buyer will emerge. Names being touted include TPG, KKR and Archer, but the list could be far greater given this company still has some strong brands, it has just lost its way. Trade buyers with an interest are believed to include Nike and French luxury group PPR, which bought Volcom Inc, the Costa Mesa surf-and-skate brand, last year for $US607.5 million."

That seems like slightly wishful thinking. Merchant took up 85% of his rights and was one of the key reasons the last bid fell over. Even saying that at $4/share he wouldn't agree to the sale. It doesn't look like he's getting ready to sell out.

The debt position looks much better now, compared to December, ~$600m reduction. It's still a good brand and as I said earlier it was hampered by some bad decisions and the economic cycle. Certainly not unsalvageable.

JTLP · 25 June 2012

On a personal level - BBG is dead.

I just don't think teenagers are into this sort of thing anymore. They'd rather go to Glue/Edge/General Pants and spend money on a plain tee or chino's than wear some surfie brand that hasn't been seen on their friends in god knows how long.

When I was a kid this stuff was ok - remember Globe? - but much like time and evolution things change and I just don't think the brands have that same equity they once did.

New positioning in brand strategy is required to get this thing moving again IMO

skc · 25 June 2012

JTLP said:
On a personal level - BBG is dead.

I just don't think teenagers are into this sort of thing anymore. They'd rather go to Glue/Edge/General Pants and spend money on a plain tee or chino's than wear some surfie brand that hasn't been seen on their friends in god knows how long.

When I was a kid this stuff was ok - remember Globe? - but much like time and evolution things change and I just don't think the brands have that same equity they once did.

New positioning in brand strategy is required to get this thing moving again IMO

I think unless we are well-recognised fashion gurus being able to foresee trends, personal experiences count for little in valuing BBG's brand. I thought Billabong was a stupid brand even when I was a teenager - I guess I was in the wrong crowd or something - but it didn't stop the share price going from $3.50 to $17. I have never heard of Nixon before but that's worth $500m... and I have no idea what ppl in the US and EU wears...

The proof will be in the number - and that's the only thing that matters.

JTLP · 25 June 2012

skc said:
I think unless we are well-recognised fashion gurus being able to foresee trends, personal experiences count for little in valuing BBG's brand. I thought Billabong was a stupid brand even when I was a teenager - I guess I was in the wrong crowd or something - but it didn't stop the share price going from $3.50 to $17. I have never heard of Nixon before but that's worth $500m... and I have no idea what ppl in the US and EU wears...

The proof will be in the number - and that's the only thing that matters.

I'm pretty sharp on the fashion ball thank you very much :

What I'm really saying is increased competition and at competitive prices. Kids are way more savvy these days - many more options to get clothes. They're also more on trend - and as I said - strategically - I think BBG is very off.

You may be right in the US but I think EU will not be too flash...

McLovin · 26 June 2012

JTLP said:
On a personal level - BBG is dead.

I just don't think teenagers are into this sort of thing anymore. They'd rather go to Glue/Edge/General Pants and spend money on a plain tee or chino's than wear some surfie brand that hasn't been seen on their friends in god knows how long.

When I was a kid this stuff was ok - remember Globe? - but much like time and evolution things change and I just don't think the brands have that same equity they once did.

New positioning in brand strategy is required to get this thing moving again IMO

Someone's still into it, they sold $1.7b last year.

Never been my thing, I think I might have a pair of boardies somewhere, but I think this whole "BBG is dead" belongs in the same category as "bricks and mortar retailing is dead".

McLovin · 26 June 2012

McLovin said:
That seems like slightly wishful thinking. Merchant took up 85% of his rights and was one of the key reasons the last bid fell over. Even saying that at $4/share he wouldn't agree to the sale. It doesn't look like he's getting ready to sell out.

The debt position looks much better now, compared to December, ~$600m reduction. It's still a good brand and as I said earlier it was hampered by some bad decisions and the economic cycle. Certainly not unsalvageable.

Apparently I was dead wrong on this. Gordy is up for it now! This thing is in play, a bid has to be coming.

Billabong founder Gordon Merchant has thrown the door open to another takeover bid, saying he felt “bad” about rejecting a private equity offer four months ago and was now prepared to accept less.

Billabong shares nearly halved in value yesterday and have plunged by 60 per cent to 96 ¢ since the company rejected TPG’s sweetened $3.30 a share offer, valuing the company at $850 million, in *February. “I feel bad about the whole situation,” Mr Merchant told The Australian Financial Review from South Africa, where he is holidaying with his family.

http://www.afr.com/p/business/companies/dumped_billabong_founder_seeks_new_1GYCn253Ibb2CZBg13heJL

McLovin · 6 September 2012

Nice to see a second bidder come out of the woodwork. Hopefully a higher price follows them.

notting · 5 October 2012

Very interesting, no movement!
TPGs concern, I reckon, is whether BBG and its shareholders will cooperate after the 3.30 or whatever it was bid now to 1.40 something.
So, leak some doubt to the Financial Rubbish Rag, creating some doubt, watch the market panic to make the bid look sweet, sweeten it a bit more and hopefully you’re in for a song.
By the way, anyone notice how thin that thing is getting? Financial Windup I mean, all those lost jobs at Fairfax.
What? they actually expect people to pay the same price!?
I have only ever liked the cartoons and at least they are still there. So suppose it's less able to help you lose money so probably worth a bit more with less.
Have never bought it myself.

Smeg · 5 October 2012

You can't really compare the $3.30 bid to $1.40 since the number of shares is almost double. The current proposal of $1.45 is equivalent to roughly $2.70. Interesting thoughts though. Will be interesting the see what turns out. The fact that the 2nd bidder backed out does raise some doubts as to what dangers lie hidden in Billabongs books.

notting · 5 October 2012

Smeg said:
You can't really compare the $3.30 bid to $1.40 since the number of shares is almost double. The current proposal of $1.45 is equivalent to roughly $2.70. Interesting thoughts though. Will be interesting the see what turns out. The fact that the 2nd bidder backed out does raise some doubts as to what dangers lie hidden in Billabongs books.

Really? Didn't think you could offer up more than 15% of your shares on issue at a time.

sammy84 · 5 October 2012

notting said:
Really? Didn't think you could offer up more than 15% of your shares on issue at a time.

Also, they were issuing shares and receiving cash in return, so more shares but more value (theoretically).

Smeg your logic is correct if there was a share split.

Basket case company.

Tyler Durden · 13 October 2012

TPG withdrew its offer, sending the SP to as low as 83 cents, but no news here?

McLovin · 15 October 2012

TPG has shown what an absolute joke takeover law is in this country. The system is arcane, you shouldn't be allowed to look under the bonnet without, at the very least, break fees. If anyone else acted on non-disclosed information it would be called insider trading but for these wombats it's called "due diligence".

FWIW, I'm jaded because I bought pre the bid and then got greedy thinking a higher price was a certainty. Live and learn.

skc · 15 October 2012

McLovin said:
TPG has shown what an absolute joke takeover law is in this country. The system is arcane, you shouldn't be allowed to look under the bonnet without, at the very least, break fees. If anyone else acted on non-disclosed information it would be called insider trading but for these wombats it's called "due diligence".

FWIW, I'm jaded because I bought pre the bid and then got greedy thinking a higher price was a certainty. Live and learn.

Breakfee probably won't help you much in this situation. Credit Swiss has new target price of 42c or something like that...

The concept of due diligence vs insider trading is a very interesting one. But how do you police it otherwise? Do you ask BBG to release information in the data room to the public?

prawn_86 · 15 October 2012

skc said:
The concept of due diligence vs insider trading is a very interesting one. But how do you police it otherwise? Do you ask BBG to release information in the data room to the public?

Why should a potential buyer have access to data that a 'normal' investor (which is still a buyer just not the whole co) doesnt? Shouldn't this all be in the public domain anyway?

Most public companies don't seem to be very public anymore...

McLovin · 15 October 2012

skc said:
Breakfee probably won't help you much in this situation. Credit Swiss has new target price of 42c or something like that...

The concept of due diligence vs insider trading is a very interesting one. But how do you police it otherwise? Do you ask BBG to release information in the data room to the public?

At least with a breakfee you can avoid most of the tyre kickers.

Difficult to police no doubt, but without a formal bid on the table, I don't think it is at the stage of warranting due dilligence.

skc · 15 October 2012

McLovin said:
At least with a breakfee you can avoid most of the tyre kickers.

Difficult to police no doubt, but without a formal bid on the table, I don't think it is at the stage of warranting due dilligence.

I wouldn't classify TPG as tyre kickers in this instance given that they spent a fair bit of time on it and it was their 2nd approach.

prawn_86 said:
Why should a potential buyer have access to data that a 'normal' investor (which is still a buyer just not the whole co) doesnt? Shouldn't this all be in the public domain anyway?

Most public companies don't seem to be very public anymore...

Most data room data are pretty detailed (e.g. store by store sales by category for last 12 quarters) so it is pretty useless for the average investor while quite commerically sensitive for the competitors. It is also impractical for the company to provide this sort of information anytime an individual investor asks for it.

So I don't know what the right answer is.

prawn_86 · 15 October 2012

skc said:
Most data room data are pretty detailed (e.g. store by store sales by category for last 12 quarters) so it is pretty useless for the average investor while quite commerically sensitive for the competitors. It is also impractical for the company to provide this sort of information anytime an individual investor asks for it.

So I don't know what the right answer is.

Agree with the competition part, but surely there is something that could be done for it. Maybe some form of online login for shareholders only? Although then of course competitors would just buy a few shares and read up all about each other...

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