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Billabong Shocks With A$537 Million Loss, Testing Bidders' Resolve

02/21/2013 | 06:22pm US/Eastern
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   By Gavin Lower 
 

MELBOURNE--Takeover target Billabong International Ltd. (>> Billabong International Limited) 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. (>> V.F. Corporation), 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

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stocks mentioned in the article : Billabong International Limited, V.F. Corporation
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