California Apparel News

Australian-headquartered Billabong International Ltd. halted trading of its shares on the Australian Securities Exchange April 2, pending the release of what the surf giant’s board of directors described as an announcement.

The announcement is anticipated to name who will take over Billabong, one of the biggest companies in action sports.

“I don’t think it’s an understatement to say it may turn out to be the single most important development in the action-sports business in the past five to 10 years,” said Gregory N. Weisman, West Coast chair of apparel-industry practices group for Los Angeles law firm Ritholz Levy Sanders Chidekel & Fields LLP. “There is so much wholesale and retail real estate directly and indirectly owned by that entity.” Weisman has been active in the action-sports market for more than 15 years, but he does not represent Billabong.

One bid, submitted in December by Paul Naude, president of Billabong’s Americas region, and New York–based Sycamore Partners Management, owner of women’s retailer The Talbots Inc., was for 1.10 Australian dollars per share in cash.

The second bid, submitted on Jan. 14 by Vans owner VF Corp.,headquartered in Greensboro, N.C., and Altamont Capital of Palo Alto, Calif., was for AU $1.10 per share in cash.

However, by April 2, both suitors had lowered their bids below AU $1.10, according to media reports, and the direction of the bidding is unclear.

Billabong owns some of the most popular brands in action sports—such as California-headquartered brands RVCA and Element and Oregon-basedDa Kine—while maintaining a stake in popular accessories brand Nixon. Billabong also owns Von Zipper, Honolua Surf company, Xcel, Sector 9 and more than 600 stores around the world, running prominent Southern California surf boutique chain Becker Surf.

The influential surf market has been buzzing with different outcomes of what a takeover would do to Billabong. Will the sprawling giant be split into different divisions? Will the business keep its status quo operation but under different leaders? The outcomes are fraught with bracing possibilities, Weisman said.

“The least talked about element on the Billabong transaction is the human-capital side of story,” Weisman said. “Not only did Billabong amass in the last 10 years an impressive stable of wholesale and retail brands, but with those acquisitions came some of the most dynamic, creative entrepreneurial minds in action sports. If those people are turned off at the buyer of the brand or are jettisoned, who knows where those people will end up. It could be very interesting.”

Retailers selling products from Billabong and its family of brands have also been anticipating possible changes, said Todd Roberts, co-owner of ZJ Boarding House of Santa Monica, Calif. Roberts and business partner Mikke Pierson also run a 3,000-square-foot Billabong boutique at ZJ Boarding House.

It is crucial that Billabong retain its DNA so the brand can weather any storm, Roberts said. “Brands get sold all of the time,” Roberts said. “Channel Islands Surfboards was sold to Burton, and Channel Islands is still a great surfboard brand. Reef was purchased by VF and is as a strong brand now as it was when it was purchased. The Volcom purchase by PPR [now Kering] had us worried, but if the brand is still performing and we still have great connection to brands, we’re solid.”

The purchase of the troubled surf giant could bring calm after a long period of turmoil for Billabong, which has been recently marked by departures of top executives, as well as two suitors—TPG Capital and, reportedly, Bain Capital—dropping their bids for Billabong. No explanation was given for why the bids were dropped.

Billabong was riding a multi-year buying spree that ended in 2010 when Billabong acquired troubled Canadian retailer West 49 Inc. for 99 million Canadian dollars.

Burdened by debt and hit by a struggling economy, Billabong reported a steep decline in its earnings, 70 percent, when it announced in February 2012 the six months' earnings for the period that ended Dec. 31, 2011.

To stabilize the company, Billabong sold 48.5 percent of Nixon, one of its most popular brands, to TPG. However, Derek O’Neill, Billabong’s chief executive officer, was fired and replaced by Launa Inman, who was a former managing director of Target Australia.

Inman worked to set Billabong on the right track with a program that called for closing 82 bricks-and-mortar stores, building a greater e-commerce presence, and investing more in Billabong’s most popular brands—RVCA, Element and Da Kine. A turnaround was attempted in a global economy that was deemed poor by Billabong management, and there was more turbulence in November when Ted Kunkel, the chairman, retired from the company.

Last month, Billabong announced financial results for the six month period that ended Dec. 31, 2012. The company reported a net loss of AU $536.6 million. “We have continued to address issues of the past and are seeing some positive signs emerging in several markets,” Inman said in a statement. “Our focus remains on simplification of the business, reducing costs, and continuing to build a culture of transparency and accountability, providing a platform for future growth for our brands.”