A reader sent me an article I imagine most of you have already seen, though I haven’t seen it covered in industry media. It tells us that Ryan Drexler of Consac, an owner of 2 million Quiksilver shares, has sent a letter to Quik Chairman Bob McKnight and CEO Andy Mooney stating that the company’s turnaround strategy has failed and that they should look to sell the company. Here’s a link to one of the articles that was published. A simple Google search will lead you to others.
And look what I just found! If you go here and click on the small document in the center of the page, the actual letter will open as a PDF. God, I love the internet.
He says, in part, “The 11-point turnaround plan announced by Andrew Mooney 16 months ago has thus far failed to deliver the desired results and, based on the deterioration in the company’s core brands since that time, has in actuality had a profound detrimental effect on the financial position and operating performance of the company, in my opinion.”
Mr. Drexler is known in some circles as an activist investor, and this isn’t the first company with issues he’s approached this way. There is a certain rhythm/process/ that happens when an investor does this, and the letter reflects it. I am not prepared to say, as Mr. Drexler does, that Quiksilver’s turnaround plan has failed. But I will continue to say what I’ve been saying; there’s a certain conflict between being a public company and Quiksilver maximizing the value of its brands, and the company’s weakening balance sheet limits the time they have to reinvigorate those brands.
The performance of the stock, as Mr. Drexler points out, suggests that he isn’t the only one with concerns. I’ve also become aware that certain of Quicksilver’s European debt is trading at $0.60 on the dollars. Actually, that’s on the Euro. The CUSIP is Z4840DAB6 if you want to check yourself.
I don’t know what’s going to happen, and maybe this is the last we hear from Mr. Drexler. On the other hand, it may be the start of a process. Quiksilver is on a shortening financial leash. At one time, I thought the solution might be to take the company private by doing a tender for the shares, but I no longer think that can happens. Even if you paid $0.00 for the shares, you’d own a company losing money with $900 million in debt and be faced with the same problem current management has.
I guess Quik’s board will have to respond to Mr. Drexler and perhaps we’ll see that response. The company’s next quarterly results are due to be released in early December. I’ll probably have more to say about their options when I see those. I mostly like Quik’s strategy. But I‘m becoming worried that they don’t have the time or money to pull it off.
About a year ago, a reader reminded me, I wrote this article relating some of Quiksilver CEO Andy Mooney’s comments in a conference call to the broader market and conjecturing on what some of Quik’s challenges might be. I don’t think I’d looked at since I posted it (I tend to be really, really, tired of articles by the time they finally make it on my web site), but it seems to have held up pretty well.