Billabong sale: “We got totally screwed!”

Billabong sells to former rival. Investor says, "Quiksilver just got the deal of the century!"

Two hundred and eight million Australian dollars. That’s how much Boardriders aka Quiksilver aka Oaktree Capital bought Billabong for yesterday.

An offer of a buck a share had been on the table for months but at the last minute, literally the last minute as the meeting took place to accept or reject the deal, Boardriders upped the bid to a buck and five cents to seal it.

This was to swing a group of rogue shareholders, who owned fifteen percent of the shares and who believed that a sale of a dollar a share grossly undervalued the company.

Still, in the aftermath.

“We got totally screwed… Boardriders have got the deal of the century,” said Peter Constable, the CEO of Ryder Financial CEO  and who owned around 10% of Billabong’s shares.

Investors like Constable claim that the true value of Billabong is currently around $1.40 – $1.50 per share, which values Billabong close to three hundred mill.

So did they get screwed? Did Quik get the deal of the century?

You gotta always suspect that a company with almost $1 billion in revenue per annum and $300 million in cash, property, and receivables was a relative bargain at $200 million. Y’get bricks and mortar, warehouses, online, wholesale, retail, a brand… the fully vertically integrated worldwide package.

If you look at the company balance sheet the $220 million debt will scream, “Abandon hope all ye who enter.”

As well, you see dropping sales and rising inventory (stuff that hasn’t sold) over the past couple of years, a cyanide pill for any business. Design, order, sell it quick and don’t hold onto a damn thing is the mantra of a company like Zara, who just made a three billion dollar euro net profit on sales of twenty-five billion euro. (Staff got to share in half-a-billon euro in bonuses.) In December 2017, with sales at $476 million, there was inventory holdings of $190 million. Crippling inventory management almost brought down Apple in the nineties and Tim Cook rose to prominence as the the man to sort it out for them.

Expenses were fat too. You’ve got cost of goods sitting at around 50% and sales, general and administrative expenses at around 40%. Size this up against other brands that sit at around 40% COGS and 30% SOGA. You just trim those bits of fat into the market average and you turn your 2017 half-yearly result from a $18.5 million loss to a $20 million profit.

The big-ticket question in this whole thing was debt. The 220 mill. Could Billabong have met its short-term debt obligation? Yep.

But the ability to repay and service that debt in the long term would be dependant on how the business performed. And as a shareholder you had the choice of cashing out now at a 20% premium over the last traded share price. Or you could go long and put your faith in the generals up top to pull everything into line and return the company to its former profitable glory.

It could be done. But given their recent track record I would’ve sold, too. Let someone else deal with it. Park my money elsewhere.

But if I’m Oaktree, and I’ve got a pockets full of Benjamin’s, the ability to call the shots, and another limping surf co in Quiky… (Benjamin’s too because in USD this deal is worth just $160 million) then I’m all in.

Will Oaktree be able to merge the two back ends together, trim the fat and start pumping out dollars? Most likely.

And once QuikBong is at fighting weight, you enlist her back on the stock market with an IPO of around $10-15 per share, take a cool payday, and everyone gets a Ferrari.