From the AFR Billabong International's two largest independent...

From the AFR

Billabong International's two largest independent shareholders have criticised the board for flinging open its books without a fight following an "opportunistic" offer made by US rival Quiksilver.
Billabong revealed last Friday it has received an indicative non-binding proposal valuing the retailer at nearly $200 million.
Quiksilver also owns DC and Roxy brands and was renamed Boardriders following its Chapter 11 bankruptcy. US-based private equity group Oaktree Capital Management owns Boardriders, which offered $1 cash per share via a scheme of arrangement.
Oaktree emerged with a 19.2 per cent stake in Billabong following a $350 million refinancing of the Gold Coast-based company in 2013. Oaktree is also one of Billabong's two senior lenders, along with Centrebridge Partners. Billabong founder Gordon Merchant holds 12.8 per cent of the company he started in 1973.

Billabong's fourth largest shareholder, Ryder Capital's Peter Constable, called Oaktree's bid "opportunistic" and criticised the board led by chairman Ian Pollard for a change in tact.
"We understand the strategy," said Mr Constable, who holds a 10.3 per cent stake and invested in Billabong following the retailer's recapitalisation. "We are very aware of some of the headwinds the business has faced. The bid in every way shape or form is opportunistic, and right at the nadir of its earnings.
"Hundreds of millions of dollars of capital has been invested and we are yet to see any of the benefits in the turnaround."​

'Not the time to sell'​

The offer of $1 cash, or 20¢ a share pre-share consolidation, is a fraction of the $2.10 that Billabong floated at in 2000.

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Mr Constable added it was outrageous that Oaktree's bid values the global multi-branded company on a multiple of about 6x earnings, when Billabong sold the significantly smaller Tigerlily for around 8x.
"We estimate synergies [by combining Billabong with Quiksilver] to be as much as $100 million a year and we are potentially giving them all that for no consideration," he said.
Mr Constable criticised the board for not taking earlier steps to refinance the $216 million debt held with Oaktree/Centrebridge.
"We feel like we are operating within a vacuum with one arm tied behind our back," he said. "These guys are very well resourced and have intimate knowledge and understanding of Billabong, and they are in the business of buying low and selling high, and now is not the time to sell."

Adam Smith Asset Management fund manager Stephen Atkinson agreed, saying he was unimpressed by the offer and questioned the timing, given the recent positive update at Billabong's AGM.
"We believe the business is at the bottom of it's turnaround so from our perspective an offer for the company is premature," he said.
"Our investment thesis is predicated on where we see the earning potential and not based on the last three months share price. [The offer] it is not a number that would cause us to adjust our view on value."
'Strong future'

Mr Atkinson said Billabong has improved the product offer while staying true to its heritage, resulting in an increasing share of the surf wallet.
"We think there is a strong future for an iconic Australian brand such as Billabong," he said.
Mr Atkinson, who bought into the troubled retailer about two years ago, felt the worst of Billabong's balance sheet issues appear to be behind it and said it would be a shame if the board did not give the company the opportunity to show its earnings potential.
"There are not too many Australian brands that have created a leading position in the marketplace like Billabong. This privileged position is not reflected in its current earnings," he said.

Mr Constable said Billabong is a valuable business and if the board do not think they are capable of delivering on the opportunity post-recapitalisation, then it should run a proper auction involving global industry players.
Citi head of research Craig Woolford said he does not expect another bidder to emerge.

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