Confirming a report that it received a non-binding takeover offer from Texas Pacific Group a few days ago, Billabong International's management announced today the partial sale of its brand of sports watches, Nixon, to another equity fund, Trilantic Capital Partners, generating net proceeds of US$285 million. It also announced a drop in dividends, the closure of between 100 and 150 stores and the dismissal of up to 450 employees around the world – 80 of them in Australia.
These and other measures are intended to improve the operating margins of the group, which is being faced with difficult market conditions, especially in Europe and Australia, after a spate of acquisitions that have strained its balance sheet.
Billabong will retain a 48.5 percent stake in Nixon, a U.S.-based company that it had bought in 2006 for about US$55 million. Managers of the Australian surfwear company said they were expecting to benefit as minority partners from the expansion of Nixon into retail channels that Billabong doesn't cover with its other brands. Nixon has few distribution synergies with its other brands, they noted.
The closure of unprofitable stores should result in an improvement in operating earnings before amortization (Ebitda) of A$5 million (€4.1m-$5.3m) to A$10 million (€8.2m-$10.7m) in the 2012/13 financial year. The group now operates 677 owned stores worldwide, and the profitable ones have an average Ebitda margin of 17.8 percent, Billabong pointed out.
Cuts in personnel and in marketing expenditures are expected to generate additional annual cost savings of A$30 million (€24.7m-$30m).
The group's total revenues rose by only 1.5 percent to 847.2 million Australian dollars (€695.5m-$902.8m) in the six months ended last Dec. 31, as compared to the same period of 2010. On the other hand, the group's operating margin before amortization (Ebitda) declined by 2.6 percentage points to 8.7 percent, with a drop to 10.4 percent in Europe, and the net profit plummeted to A$16.0 million (€13.1m-$17.0m), compared with A$57.1 million.
In local currencies, group sales increased by 5.1 percent in the Americas and by 11.7 percent in Australasia. They were flat in Europe, where the Ebitda margin fell to 10.4 percent from 15.3 percent. Company managers referred in particular to weakness in Greece, Spain and Portugal and pointed out that the company had experienced the worst winter conditions in 20 years. In constant currencies,
The management indicated that it was still prepared to examine offers to sell the company that would be in the interests of the company and its shareholders. It pointed out that TPG's offer had not been “certain” and that it would have been conditional on Billabong not selling its ownership in any of its brands, including Nixon.
Trading in Billabong's shares on the Australian Securities Exchange was temporarily halted yesterday, pending the release of today's announcement, after heavy trading in the company's shares in the last few days.
There were already reports pointing to a $766 million takeover offer from TPG earlier this week, representing a premium of 70 percent on Wednesday's closing price of 1.79 Australian dollars per share.
As indicated in SGI Europe's stock chart at the beginning of this year, the company's stock market capitalization plunged by 78.4 percent to US$449 million in 2011. Its share price has fallen by 65 percent in the last six months alone.
Late last year, Billabong appointed Goldman Sachs to review its capital structure, after warning about a likely drop of up to 25 percent in its net earnings for the first half. Analysts were expecting a drop of 50 percent for the full financial year to about $64 million.
