TPG, as with any private equity play, needs to execute it via a scheme of arrangement to ensure that it achieves 100% ownership. That’s usually a pre-condition of private equity funding.
It can’t, however, impose a scheme on Billabong. The Billabong board needs to co-operate and endorse it and therefore the board’s support is vital.
With the board saying today that in any change-of-control transaction it would seek to ensure that the medium to long-term prospects of the company and its brands were reflected in the value realised by shareholders, there is no certainty that it would endorse an offer of $1.45 a share given that Inman’s strategy, if she can execute it, would unlock considerably more value than that.
Thus it is still open to the board to use its leverage to try to prise something more from TPG, assuming TPG comes out of the due diligence process with its interest in acquiring Billabong intact.
While Billabong’s shareholders might not be too happy if their board tries to push for something more and risks losing TPG in the process, TPG has no history of going hostile and in any event trying to unseat the board would (a) consume a considerable amount of time and (b) not necessarily produce a more compliant slate of directors given the fiduciary obligations any director has.
If TPG, too, walks away the board would have no option but to batten down the hatches and back Inman to pursue her strategy, the core of which is to shrink a large and highly unproductive product range to the core profitable products and do something even more draconian to a similarly large and unproductive range of suppliers.
There is a lot more to it, of course, than that – the retail brands need repositioning, the retail store network needs rationalising, a lot more retail skills have to be brought to bear, the supply chain has to be completely overhauled and Inman wants to build an e-commerce platform.
If she could pull it off, however, Billabong would be worth several times, at least, what it is worth today and what a TPG or anyone else would pay today given the execution and external risks.
This article first appeared on Business Spectator.
