Billabong's Paul Naude. Photo from Transworld Business.

In the continuing struggle to hang on, Billabong announced yesterday, November 18, 2012, that Paul Naude, Director of Billabong and President of the Americas will stand aside temporarily in order to investigate the possibility of putting forward a proposal for a leveraged buyout of the Company.

Billabong has been struggling for some time. As a recap, this past October, the private equity firm TPG pulled its bid for taking over the beleaguered surf brand. Immediately, shares dropped to 82 cents. At that time, City Index chief market analysis Peter Esho stated that Billabong’s future was not looking good. “What we’re seeing today in the market is those that were holding the stock for a takeover offer completely leaving, discarding, and those that have trust in management, that ability to improve, are going in with a longer term horizon,” he said.

TPG first approached Billabong earlier this year with an offer at $850 million which was rejected by the brand. Then this summer, they approached Billabong again for an offer just under $700 million. Two and a half months of talks later, they pulled that offer.

In addition, Bain Capital (who has an equity stake in Quiksilver) had made a tentative offer in September but pulled their bid after only 2 weeks.

Meanwhile, here’s the next step for Billabong and the latest news from the Board:

Mr. Naude has advised that he is seeking to hold discussions with potential financiers, both debt and equity, to gain their support for a potential change of control transaction of Billabong. Mr. Naude’s decision was not solicited by the Board of Billabong and Mr. Naude has confirmed that there is no agreement, arrangement, or understanding with any member of the Board or Billabong’s senior management team in regard to his proposal. He is acting independently.

The Board of Billabong has agreed to Mr. Naude taking these steps, but strictly on the basis of certain protocols which ensure that the interests of the Company and shareholders are protected. The key protocols are:

  • Granting a period of up to six weeks (or such longer period as the Board may subsequently determine) for Mr. Naude to stand aside from his current roles at Billabong;
  • For the purposes of Mr. Naude’s discussions with potential financiers, no confidential information regarding Billabong will be provided to them;
  • If discussions between Mr. Naude and potential financiers advance to the development of a proposal capable of consideration by the Board, confidential information will only be provided through a formal due diligence process approved by the Board, with customary confidentiality agreements in place;
  • Any proposal received from Mr. Naude must meet the same sufficiency of information as previously required by the Board from other interested parties. In particular any proposal would need to include an indicative price per share and sufficient evidence for the Board to have a reasonable basis to determine that financing would be available for such price;
  • Mr. Naude is not to engage in discussions with any party involved in the formal change of control process recently undertaken by the Company, without the express consent of the Chairman of Billabong; and
  • During Mr. Naude’s absence, he will not contact directors (other than the Chairman or CEO), any top 20 shareholder or anyone Mr. Naude knows to be a shareholder, employees, customers, suppliers or the media in relation to any proposal or the business of Billabong. If Mr. Naude is required for business reasons of the Company to talk to anyone of the above parties this will only be done with the approval of the Chairman or CEO.

The Company’s priority and focus, for both Board and management, is the continued implementation of the Transformation Strategy.

During Mr. Naude’s absence, his executive responsibilities will be addressed by Peter Bryant (CFO for the Americas) for general business and wholesale, and Colin Haggerty (Group Executive – Retail) for retail, both supported by CEO Launa Inman.

The Board of Billabong wishes to advise that there is no guarantee that, following discussions held by Mr. Naude, a proposal which is able to be considered by the Board will be forthcoming nor, even if such a proposal is forthcoming, that it will be deemed by the Board to justify the granting of due diligence.

If at the end of the six week period the Company has not received a proposal from Mr. Naude, the Board will discuss with Mr. Naude the appropriate undertakings required for him to resume his roles.