Blood Feud: Surf Stitch vs Surf Stitch!

Gorgeous blond CEO, co-founder quits. Frumpy brunette co-founder left to rock in cubicle… 

Do the machinations of business confuse and fascinate you as they do me? My favourite, at least in recent memory, was Quiksilver emerging from the cocoon of chapter 11 bankruptcy $US600 million lighter in debt.

It’s like a magic pudding! Pour your cash away on any ill-advised venture and it… don’t matter a thing!

A wise business gal once advised me to identify companies throwing cash around and to attach myself to its teat and suck the bejeezus out of it until it dried up. Oowee! Did I ever tell you about the time me and a pal got a company to pay $350,000 (in 2003 dollars!) for a book that fed us a quarter-mill in profit? And that Stab was born with the proceeds? And that we made so many bad decisions we ate up the money in a year?

In the early 2000s, it was Billabong with the blank checks. Lately, it’s been online retailer SurfStitch.

Do you remember last May when SurfStitch spent $13.8 million in cash and 4.8 million in shares buying Magic Seaweed and Stab? Or four months ago when they threw $23 million at FCS?

So much floral extravagance!

And the adventure continues.

Just a few hours ago, the CEO and co-founder, Justin Cameron, quit his gig “to join forces with a private equity group, in preparation for a possible bid for the company.”

Meanwhile, the other co-founder of SurfStitch, the brunette Lex Pedersen, has been left to rock to and fro in his cubicle! Blood feud?

In The Australian newspaper, Eli Greenblat reports: “Left stranded is Mr Cameron’s surfing buddy and fellow SurfStitch co-founder Lex Pedersen, who remains at the company as managing director in charge of its North American online business Swell. The pair grew up together on Sydney’s northern beaches, dreaming of starting a surf retailing business. By December 2014 they joined hands to yank the piece of rope that hangs from the Australian stock exchange’s golden bell for their company’s $83 million initial public offering.

“They were obviously mates, dressed casually, beaming for the cameras with a surfboard leaning against the wall. They had lost none of the enthusiasm or camaraderie born from years toiling away in Mr Cameron’s garage, where the two surfing buddies began building their dream company nearly a decade ago.

“Now Mr Cameron, a finance executive who worked for top investment banks such as Credit Suisse and ABN AMRO before he dumped his classy suits for scruffy jeans and T-shirts, is out and in the hunt for his old company without Mr Pedersen.

“Surfers have been known to get into violent punch-ups over accusations of being burnt, or having another surfer drop in and steal their wave, now at SurfStitch it will be private equity raiders, lawyers and merchant bankers puffing out their chests and bracing for a rumble.

“Shares in SurfStitch rallied 22 per cent on expectations of a possible takeover bid led by Mr Cameron and his new private ­equity buddies, and later closed 13c better, or 11 per cent, at $1.31.

“According to sources close to the negotiations, Mr Cameron and his backers, are preparing to pitch any privatisation bid between $1.80 and $2 a share.

“The move to buy out the company comes amid growing frustration from some institutional investors who have questioned the valuations paid for recent acquisitions.

“Clearly there is blood in the water. Mr McDonald, the SurfStitch chairman and former chairman of department store Myer, told of his personal ­disappointment over the way Mr Cameron handed in his resignation. For Mr McDonald, who will oversee the day-to-day activities of the company until a new CEO is found, there are traditions and standards that matter in the business world.

“SurfStitch said Mr Cameron had resigned within a fixed two-year period and before his contract allowed, possibly opening up a fresh battle over his entitlements that could turn into a legal brawl.

“‘Half the expertise of the company just walked out the door,’ said one fund manager.

As reported by The Sydney Morning Herald, “The founder and chief executive of SurfStitch, Justin Cameron, appears to have gone rogue. In a bombshell statement on Thursday morning, the company that was floated less than 18 months ago said Cameron had resigned and as a result of a conflict of interest – one which the SurfStitch board soon ascertained was a plan to lead a private equity-backed buyout…

“Until last month, SurfStitch was one of the market darlings – having listed its stock at $1, and then more than doubled that price within a year. But the euphoria bubble burst in February when the company backed away from its bullish full-year earnings target, and told investors instead that it wanted to invest in growth.

“The shares plunged 40 per cent to a low of $1.07. Cameron and his co-founder Lex Pedersen, however, were somewhat insulated from the fall, having sold 10 million shares in August at $1.77 a share – almost half their stakes.”

And,

“The less buoyant share price of recent weeks presented an opportune time for predators to take a look at the company, which had previously been trading at extreme price earnings multiples approaching 50 per cent.  Last April, Cameron said he was aiming to lift revenues fivefold in five years to $1 billion by growing the company’s business in Australia, North America and Europe, expanding into new markets in Asia, and grabbing a larger share of the global action sports market. He even described the company as a kind of niche Amazon.”

And, again, from The Australian:

“It comes as SurfStitch is radically changing its business model, shifting from a pure-play online retailer that sells a large range of boardshorts, surf gear and action sports equipment to a business more focused on content after recently shelling out more than $20m on online portals such as Swell TV and Magicseaweed.

“SurfStitch’s powering share price, which late last year hit a record high of $2.09 against its IPO issue price of $1, crashed more than 40 per cent last month when the former market darling walked away from its earnings guidance and investors dumped the stock.”

What do you think?

Is SurfStitch an Amazon-like juggernaut, merely at the beginning of its upward arc?

Is it a shooting star riotous with brilliant colours but, ultimately, doomed to crash in an ocean of debt?

Or do we see the classic story of the popular blond triumphing over his less attractive mousy-haired pal? Oh I know the feeling!