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Billabong Founder’s Losses Estimated at $960 Million in Takeover

According to an article on Goldcoast.com, Billabong Founder Gordon Merchant’s losses from the sale of Billabong could reach $960 million from the companies peak value in 2007.

Here’s the story:
April 10, 2013 – The Gold Coast’s richest surfer, Billabong founder Gordon Merchant, looks lined up to suffer a massive wipeout.  Mr. Merchant, the largest shareholder in the iconic Gold Coast-based surfwear brand, could lose about $960 million from his stake in the home-grown brand which he started in 1973.

The board of the bruised and battered surfwear giant late yesterday indicated it had entered into a 10-day period of exclusive talks with Paul Naude, the head of Billabong in the Americas, and his private equity partner, Sycamore.  They are trying to stitch up a cash-and-share deal that will mean the once-great surfwear giant falling in to private hands. Under the deal, Billabong would accept a 60 a share offer from the Naude-Sycamore consortium, which values the company at $287.4 million.  However, stakeholders can also choose to accept shares in Sycamore affiliate NewCo for up to 24.9 per cent of equity in Billabong. If investors choose to take more than 24.9 per cent of shares in NewCo, share allocation will be scaled back.

In what is a move to appease Merchant and fellow director Colette Paull, the pair would take shares in a swap for their combined 16 per cent stake in the company.  The terms remove the likelihood of Merchant, who previously refused to countenance higher deals, again being the stumbling block by rejecting the offer entirely. He and Paul have indicated they will agree to the deal, subject to a better offer.  If the offer goes through, Merchant stands to take a massive hit.

At the company’s peak in 2007, his shareholding was worth close to $1 billion but, based on the 60 a share offer, he will have $960 million wiped from his 15 per cent stake, now worth about $40 million.  The deal may save the beleaguered retailer from annihilation but it’s a massive plunge from the $4 billion the company was once worth in 2007, when its shares touched $18.51.

It will now be up to shareholders to decide whether they want to end their years of takeover fatigue, accept the offer and get out while they can.  It is a much diluted offer from the $1.10 a share bid the Naude team put forward in December, which valued Billabong at $527 million.  It is also a huge discount on the $850 million, $3.30 a share offer from TPG which was rejected as too low by Merchant last February.

Nathan Blair, manager of Ord Minnett Gold Coast, said the offer was a discount takeover but a way of appeasing Mr Merchant to push the deal over the line.

“I believe at least one of the previous bids collapsed because Mr Merchant wouldn’t sell out completely,” he said.  “Paul Naude is cognisant that a successful scheme would have to include many of the large shareholders, like Gordon Merchant, who believe the business can be turned around.”