Cash flow

Billabong to cut 150 stores and 400 staff to fend off $765 million private equity offer

By Madeleine Heffernan
Friday, 17 February 2012

Under-pressure surfwear chain Billabong International has emerged from a trading halt to play hardball on a private equity offer, deliver a wide-ranging plan to cut costs and declare that domestic retail spending is unlikely to pick up in the near term.

Billabong shares jumped 50% to around $2.65 after the company said it would:

close between 100-150 stores worldwide;
lay off 400 staff, including up to 80 in Australia;
seek to cut rent costs by $20 to $30 million;
reduce its interim dividend; and
sell a 48.5% stake in its Nixon brand to Trilantic Capital Partners to address its “balance sheet issues, in particular to avoid any potential breach of its bank covenants.”

The company reported a 72% first-half profit fall of $16.1 million and its chief executive Derek O’Neill said on a conference call he did not expect Australian retail spending would pick up any time soon.

Billabong told shareholders that it had received a "non-binding, indicative proposal” to acquire the company for $3 cash per share, but that $765 million proposal was “not certain.”

“It was subject to due diligence, subject to finance and conditional on a number of other matters, including Billabong not selling down its ownership interest in any of its brands, and exclusivity. In the absence of certainty, Billabong has proceeded with the partial sale of Nixon in order to stabilise its balance sheets.”

Billabong entered a halt yesterday, following a report it had received the $3-per-share offer, which is well below its pre-GFC valuation of $12 per share.

The report prompted speculation that Billabong founder Gordon Merchant, who is a 15% shareholder, will seek to retake control of the company.

The company sells about two-thirds of its products overseas, and has been hit by the weak European and US economies and its debt load.

The decision by Billabong to cut stores and seek rent reduction adds to bad news for landlords, who are under pressure to cut prices as retailers struggle with lower margins after the GFC.

The company was dubbed as one of the least impressive retail stocks to report in the 2011 reporting season by broker Linwar, alongside Specialty Fashion, the Reject Shop and Premier Investments.