If it wasn't so serious, the announcement this morning by Billabong that private equity group TPG had pulled out of its non-binding takeover offer would verge on the farcical.
But it is serious, as evidenced by the share price falling to 82 cents when it opened at 11 am. Billabong shares closed yesterday at $1.05; TPG's non-binding offer was $1.45.
Both parties have decided to keep tight-lipped about why TPG decided to pull out, which leaves investors whispering in the dark about what on earth has prompted two private equity groups to decide to withdraw from non-binding conditional offers within weeks of each other without an adequate explanation.
Was it the stock, the US sites, or was it something else? Or was it a difference on price? Or maybe it was something related to the private equity groups. Markets hate uncertainty and this morning's announcement by Billabong has created a breeding ground for uncertainty.
TPG informed Billabong chief executive Launa Inman, who held a snap press conference this morning to talk about the announcement. Unfortunately for shareholders, she said absolutely nothing. "They gave no indication," she said. But she added that TPG commented about how helpful the team of members had been during the due diligence process and that they believed Billabong's transformation strategy was going well.
TPG was equally evasive, issuing a statement which said, in part: "Board and management were very constructive throughout the process and laid out a credible performance improvement plan, but ultimately TPG has decided to withdraw from the process." But there is another serious issue to be considered for boards. At what point should they open their doors when approached with a non-binding and conditional takeover offer, particularly by way of a scheme of arrangement. The lesson here, and in the case of Pacific Brands with KKR, is the boards of both companies felt they had no choice but to let the private equity players in to do due diligence with no strings attached. If they had ignored them, they would have been stung by the wrath of investors, but by letting them in, they have given parties access to the business, which is distracting, only to see them walk away.
In the case of TPG it was given an even greater incentive by having two key shareholders Perennial and Colonial agree to sell them their shares. That is now up in smoke. The options expire, with no cost to TPG. While TPG has spent the better part of a year looking at Billabong, off and on, it is still a case of all care and no responsibility and it does throw open the debate on when to allow due diligence. Investors are now back to square one, with Inman saying her strategy will provide "a clear pathway to unlocking the inherent value within the company". The problem is investors are now left wondering what that inherent value might be.
Billabong is now a company trying to scramble its way out of a crisis. Investors have suffered a series of profit downgrades and, more lately, a capital raising. Its shares have fallen from a peak of $17 to a low this morning of 84c a share. The latest debacle will only add to the already serious issues in staff morale. If Inman thought she had a lot on her plate when she took the job earlier this year, it just got a lot fuller.