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Boardriders Makes Bid for Billabong

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Billabong confirmed the speculation that has been bubbling for several months: that Billabong and Quiksilver are in talks to merge the two companies.

Boardriders Inc., the new name for Quiksilver, has made a preliminary, non-binding offer to buy Billabong for AUD$1 a share, above the 78 cent current share price.

Oaktree Capital Management, the owner of Boardriders, also owns 19% of Billabong and is one of Billabong’s two senior lenders.

The Billabong board voted to allow Boardriders to conduct due diligence, which is likely to take several weeks. Due diligence is required before Boardriders makes a formal offer, if they decide to proceed with the deal. If an aquisition took place, Billabong would become a private company and would no longer be listed on the Australian stock exchange.

In a statement, Billabong emphasized there are several hurdles that still must be overcome before any acquisition happens, including securing financing, a unanimous recommendation from the Billabong board, and shareholder and regulatory approval.

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There is no guarantee that a formal offer will come from the talks and the due diligence process, Billabong said.

If a deal happens, the consolidation would come after years of shrinkage in the action sports global marketplace, and after Quiksilver’s bankruptcy filing and acquisition by Oaktree.

Quiksilver and Billabong, archrivals for years, are the largest companies in the surf industry. Quiksilver (now Boardriders) owns the Quiksilver, Roxy and DC brands, while Billabong International Limited owns Billabong, RVCA, Element, Xcel and VonZipper.

Globally, Quiksilver is much stronger in Europe, while Billabong is stronger in Australia, where it owns a large retail fleet of both mono-brand and multi-brand stores.

A merger of the two in Australia could put pressure on Rip Curl, which is a robust competitor in the region.

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In the U.S., the Quiksilver and Roxy brands have broader distribution, while Billabong and RVCA don’t have as much department store penetration.

In the past several years, Billabong and RVCA have been gaining share in the core channel despite the shrinking size of the market, while Quiksilver had been losing share, according to ActionWatch.

Like most mergers, the goal would likely to be to consolidate back-end operations while keeping the brands separate and differentiated. Quiksilver is known to have much better global systems and platforms while Billabong is underdeveloped in those areas.

One could envision consolidation in different regions, with the stronger company in a respective territory possibly taking a leadership role.

If the deal were to happen, it will be interesting to see how core retailers react. Quiksilver, Roxy, Billabong, Billabong Women’s and RVCA make up a large percentage of sales at many core stores and some retailers may feel uncomfortable being beholden to one company.

However, there are strong counterpoints such as Volcom and Hurley, and newer brands like Vissla and Salty Crew have the potential to grow into major players.

In addition, both Quiksilver and Billabong have great relationships with core retailers these days and work hard to keep them happy and strong, and will likely continue to do so even if they merge.

It will be interesting to see if the Quiksilver and Billabong brands compete in the same channels in the future if a merger happens, or if they eventually go after different target markets.

Billabong declined to comment beyond the press release issued today. However, we understand the message being sent to employees is that it is business as usual for now, and that the process is in the very early stages and may not even come to fruition.

We reached out to Boardriders, which declined to comment.

A possible joining of Billabong, Quiksilver, RVCA, Roxy and DC under one company may also shed new light on why Quiksilver Inc. changed its corporate name to Boardriders Inc. earlier this year.

 

 

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