By Gavin Lower
MELBOURNE--Takeover target Billabong International Ltd. (BBG.AU)
Friday shocked the market with a gaping net loss and a fresh
warning on future earnings that will test the appetite of two U.S.
consortia to firm up bids for the Australian surfwear maker.
Billabong booked a net loss for the six months to Dec. 31 of
536.6 million (US$553.0 million) after it took a A$567 million
impairment charge relating to the value of its brands and
investments. The writedowns are so large that they exceed the
company's market capitalization of A$435.8 million ahead of the
announcement.
Billabong is battling to reverse an earnings decline triggered
by the global slowdown, a strong Australian dollar that has diluted
overseas income, and the dwindling appeal of its core brands among
younger people. Sales in the Americas and Europe have fallen
sharply as cautious consumers rein in spending or switch to other
brands, leading to a build up of surplus clothing stock.
The former head of its Americas division, Paul Naude, teamed up
with private equity firm Sycamore Partners Management in December
to make a A$526.8 million offer for the company. A month later VF
Corp. (VFC), the owner of Timberland and The North Face brands,
joined up with Altamont Capital Partners to match the
A$1.10-a-share offer from Mr. Naude's group.
Management presentations and site visits continue with both
consortia as part of a due diligence process that's expected to end
next month, Billabong said Friday.
The company downgraded its guidance for earnings before
interest, tax, depreciation and amortization in the fiscal year
through June to between A$74 million and A$85 million, from
previous guidance of A$85 million-A$92 million.
"The Group has continued to face difficult trading conditions in
Europe and the performance of Nixon has not met expectations.
Performance of the rest of the group remains broadly in line with
expectations," Billabong said in a statement.
At the half-year stage in 2012, Billabong reported a net profit
of A$16.1 million.
Write to Gavin Lower at gavin.lower@wsj.com
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