Billabong brand is worthless as corporate vultures circle

The Australian based surf company Billabong has written down to zero the value of its Billabong, Element and Palmers brands, which in effect means that they are considered to be worthless.

Will Billabong avoid a wipe out?
Will Billabong avoid a wipe out?

Just a year ago, the Billabong brand was valued at 252 million Australian dollars.

Billabong posted a massive annual loss that totals more than three times its market value for the year ending June 2013.

The company’s full year loss of A$ 859 million dwarfs its A$ 256 million market capitalization, and shares have fallen to 46 Australian cents.

Billabong’s global sale revenue dropped 13.5% during the last financial year. The company’s net debt rose 28 % during the same period, while its operating income reduced by 51%.

The company has cut 15 % of jobs in its European division as well as closing 158 poor performing retail stores and reducing over 75% of its suppliers.

Billabong is considering two refinancing offers, one led by U.S. private equity firm Altamont Capital Partners and another from U.S. hedge funds Oaktree Capital Management and Centerbridge Partners and has said it wants to make a decision as soon as possible.

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“We are nearing the end of a long process that has caused distraction, impacted on staff morale and has been very costly,” Ian Pollard, Billabong’s chairman, said on Tuesday in a statement. “The company looks forward to refocusing, reinvigorating its brands and rebuilding the business on a solid, long-term financial footing.”

Isabeau Joubert family

However, the latest annual financial statements make it clear why the money vultures have given up trying to buy shares in the company and are now focused at buying Billabong’s debt instead.

This strategy will allow them to convert debt to equity at a later point in time, normally at a vast discount to actual value.

Founded in 1973 by Gordon Merchant, a surfer who started out making board shorts in the kitchen of his home on Australia’s Gold Coast, Billabong has seen sales decline in recent years as it has struggled to bolster its balance sheet and has fended off a number of takeover offers.