Naude/Sycamore Bid $0.60 for Billabong, but Deal Not Done Yet

Paul Naude and Sycamore Partners (“NS”) have made a non-binding bid of AUD $0.60 for each share of Billabong yesterday, down from their preliminary bid of $1.10. Billabong has given them an exclusive period of ten business days to complete their investigation and finalize the bid. You can read Billabong’s press release here. It’s the “proposal update” under “Recent News.” 

And before we get into the details, you might also want to read this article, which was published over the weekend in Australia. Ms. Knight does an excellent job of encapsulating Billabong’s history and the forces and decisions that lead the company to its current situation. I wish I’d written this. Thanks, you who sent it to me!
Here’s what we know from the press release:
Sycamore is going to form a new company which would legally be the entity buying Billabong. A seller of Billabong shares can either take $0.60 a share or shares (they call it scrip) in the new company. I don’t know if scrip is something different from stock under Australian law.
It’s a condition of the proposal that at least 15% of shares accept scrip and that insiders Gordon Merchant and Collette Paull and their families take the scrip unless they get a better offer. Together, they own about 16% of the Billabong shares, and they’ve indicated they’ll take the scrip. What this means is that NS has to come up with less cash then they otherwise would. The fact that they got this provision accepted is to me an indication of Billabong’s need for a deal.
I don’t know what will happen, but if I’d paid, say, $5.00 or more (or maybe less) for my Billabong shares and was about to get $0.60 a share, I might just take the scrip and hope Paul and his team can do good things.
NS is also going to “…engage an internationally recognized accounting firm to complete a confirmatory quality of earnings analysis typical of an acquisition debt financing.” Not a surprise given the number of times Billabong has reduced its earnings expectations in recent months.
Also, the “…conditions of the bidder’s debt funding” have to be satisfied. We don’t know how the debt is being funded or what those conditions are. Could be Sycamore’s money, could be a third party, maybe Paul’s putting in some cash or maybe some combination of all three. In any event, as the press release makes clear, the deal isn’t done and right now neither party has an obligation to go through with it. I suspect the quality of earnings analysis will have a lot to do with satisfying the lenders, whoever they are.
We don’t learn whatever happened to the VF/Altamont offer. Maybe they didn’t make an offer or maybe they offered less. As I wrote when their interest was first made public, I thought they might have a hard time agreeing who got which piece of Billabong at what price.
As you are probably aware, Billabong’s assets are pledged to their bankers and, basically, that gives those bankers a lot of influence. As bankers, they aren’t so much concerned at this point about Billabong growing and prospering as they are about getting their money back. So it’s reasonable to assume they are in favor of any deal that gets their loans paid off or at least improves their security.
Billabong, for its part, can only not make this deal (or some other deal not in evidence) if, with the support of those banks or from another source, they have the working capital to cash flow their business while current CEO Launa Inman’s strategy is implemented. Remember she said at their half yearly presentation that while they were working on it and had already seen some results, the real benefit wouldn’t show up until next year.
Unless the quality of earnings analysis turns up something pretty bad, I think the odds are that this deal will happen, though I have no opinion as to what the final price per share will be.