Billabong to disappear after 60 cent bid?

Sycamore Consortium offers 60 cents a share

a woman

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Surf wear maker Billabong International (ASX: BBG) has confirmed media reports, today announcing that it had entered into discussions with Paul Naude and Sycamore Partners, after the consortium offered 60 cents a share for all of Billabong. The consortium had previously offered $1.10 a share.

The Sycamore Consortium has also offered shareholders the option of taking scrip in a Sycamore company (NewCo), instead of taking the cash, if they want to retain a stake in the turnaround of Billabong. However, strict conditions mean that if scrip elections exceed 24.9% of the NewCo shares, the applications will be scaled back pro rata.

At least 15% of Billabong鈥檚 shares must elect to receive scrip in NewCo, and the company鈥檚 founder and largest shareholder Gordon Merchant, along with Colette Paull and their families which hold 16% of Billabong, have confirmed that they will elect to receive scrip consideration. That means that if more than 10% of Billabong’s minority shareholders elect to receive scrip in NewCo, all applications will be scaled back.

Billabong has now entered an exclusive 10 business day period of exclusivity with the Sycamore Consortium, to allow it to engage an accounting firm to complete a confirmatory quality of earnings analysis.

While the Billabong board have negotiated a Scheme Implementation Deed, there鈥檚 no guarantee that the bid will still proceed. It appears that the board of Billabong support the 60 cent bid, but that is yet to be confirmed.

The other factor to take into account is the views of shareholders. Billabong鈥檚 lowest ever share price is 63 cents, while at once stage it traded at over $22. Many shareholders are unlikely to support a takeover bid at this price, despite the dismal performance of the company over the past few years. With new managing director Launa Inman only appointed in May 2012, shareholders may elect to give Ms Inman a chance to turnaround the company and implement the turnaround strategy she outlined last year.

Foolish takeaway

The Billabong saga is far from over, expect more ructions before the surf wear icon disappears from the ASX.

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