Insights on the Sale of Billabong to Boardriders

On February 14th, Billabong released a 194 page document explaining the deal under which Boardriders (formerly Quiksilver and owned by Oaktree) will buy it for $1.00 a share (all number in Australian dollars unless otherwise noted).  You can go to this page and click on “Court Orders Convening of Scheme Meeting” to download the document as a PDF.  It includes the independent expert’s report prepared by Grant Samuel & Associates Pty Ltd (“Samuel”) explaining and justifying the purchase price.

Perhaps the best way to start is to review a little industry history.  I posted a link to “Subcultural enterprises, brand value, and limits to financialized growth: The rise and fall of corporate surfing brands” last year.  Here’s the link again.  Those of you who didn’t read this study ought to take the time.

We learn that the deal is expected to close on April 24th.  In a strategic sense, despite the length of the document we don’t learn much that’s new.  Some of the comments on possible synergies from the combination are interesting and there are some new facts/opinions we’ll get to.  Let’s get started.

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Speaking of Consolidation- Boardriders’ Acquisition of Billabong

Back in September of 2013, when Centerbridge and Oaktree invested in Billabong, there was some discussion/consternation about the possibility of Oaktree combining Quiksilver, which it already controlled with Billabong.  Quiksilver’s name, as you know, was changed to Boardriders.  It owns the Quiksilver, Roxy and DC brands.  Billabong’s three largest brands are Billabong, RVCA, and Element.  It also owns some smaller brands which I continue to expect will be sold.  Probably easier to do that once Billabong is not a public company.

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Sales Go Nowhere, But Profits Rise- A Poster Child? Tilly’s Quarter Ended October 28th

How, when you increase your sales less than half of one percent (compared to the prior year’s quarter) from $152.1 to $152.8 million, do you manage to increase your net income 36.5% from $6.42 to $8.76 million even though tax expense rose by $1.38 million while operating with five less stores (220 total)?

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Brands, Staffing, and Stores; Zumiez’s Quarterly Results

Zumiez increased revenues and profits in their October 29 quarter compared to the same quarter last year.  The more interesting strategic question is how (if a single quarter is indicative of longer terms trends) and I’d like to highlight three factors that I see working together, though they are typically discussed separately.

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Billabong Receives an Offer to be Taken Private

Well, it appears I’ve done it again.  After having published just this morning an article in which I said, “Billabong would be better off as a private company, but I don’t see a path to privatization that makes sense to Oaktree,” Billabong has received an offer to have its outstanding shares acquired for $1.00 each (Australian dollars) from Boardriders (formerly Quiksilver), in which Oaktree has a majority interest.  Guess I should have added, “to which Billabong could be expected to agree.”  I may still turn out to be right with that caveat.  Here’s the announcement.

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Billabong and Rip Curl; A Tale of Two Surf Companies and Their Interesting Juxta Positioning

A few weeks ago, you no doubt saw the reports that Billabong (which would mean Oaktree Capital Management– the controlling investor in Billabong) was doing due diligence on Rip Curl as a possible acquisition.  Oaktree, of course, is also a major investor in Quiksilver.

When Oaktree invested in Billabong, there were some rumblings about combining it with Quiksilver, but nothing ever happened.

Meanwhile, we have a bit of information on Rip Curl’s earnings and last week, and Billabong held its annual shareholders meeting where Chairman Ian Pollard and CEO Neil Fiske reviewed the full year results.  Those results were released back in the middle of August and I wrote this article about them.

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Core Versus More; A History of the Surf Industry

Perhaps I bring the most value to the industry when a reader sends me something they think is important but that they don’t want to be directly associated with.  And they figure, “Send it to Jeff!  He’ll publicize anything.”

Most of the time, they’re right and this is one of those times.

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The Details We Don’t See; Zumiez’s July 29 Quarter

During the quarter, Zumiez increased its sales and reduced its loss compared to the same quarter last year.  It continued to follow its strategy and its balance sheet remains solid- perhaps a bit stronger than a year ago.

I’ve generally been a supporter of Zumiez’s strategy.  It’s not that they necessarily know any better than any other retailer how things are going to shake out as retail consolidation winds its way through the industry, or that they are certain how, exactly, brick and mortar and online are going to evolve and influence each other.  But they’ve made a couple of bets (that we’ve been talking about for some quarters bordering on years now) that are complementary to their long-term strengths and strategies and that offer them the data and flexibility to respond when, inevitably, things don’t turn out exactly as they expect.

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