Billabong announced early this morning it is acquiring Canadian retailer West 49, Inc.
West 49 operates 138 mostly mall-based stores under five banners in Canada, including five Billabong stores.
West 49 reported a net loss of $2.6 million in the quarter ended May 1. It had no cash or cash equivalents on its books at the end of the first quarter and bank debt of approximately $9 million, according to its financial reports.
Click here to read our Executive Edition interview today with Billabong North America President Paul Naude about the acquisition.
Purchase price
The purchase price is $99 million Canadian ($93.5 million US at current exchange rates). The price includes West 49’s debt. Billabong will fund the purchase with its existing loan agreements and the deal is not subject to receiving new financing.
Billabong will pay $1.30 per share, West 49 said, more than double West 49’s share closing price of 55 cents Tuesday.
West 49 founder and CEO Sam Baio will stay with the company, and Billabong said it will continue its policy with acquisitions to retain existing employees.
Baio owns more than 5 million common shares and 1.1 million preferred shares. At $1.30 per share, that equates to $7.9 million.
With the purchase, Billabong will own a total of 510 stores worldwide. In North America, the deal will increase its stores from 90 to 230.
Billabong has bought many retailers over the years, including most recently, Becker Surf and online retailer Swell.com.
(Right: Billabong CEO Derek O’Neill. Photo courtesy of Billabong.)
Why West 49
Billabong said in its presentation it will still carry competing industry brands, but also expects to increase its penetration of Billabong-owned brands across West 49’s five banners.
It also said the acquisition should be accretive to earnings in FY 2011 and the company expects significant synergies in FY 2012 from the shift to a more vertical business model.
Billabong also indicated it may eventually expand West 49’s retail footprint in Canada.
Here are the reasons quoted for the acquisition in Billabong’s presentation today.
(Right: Billabong North America President Paul Naude. Shop-eat-surf file photo. All rights reserved.)
On page 2: Billabong’s reasons, Canada on the action sports radar
Billabong’s reasons for aquiring West 49
- Increases the availability of Billabong’s brands in the key action sports market of Canada
- Provides the ability to increase wholesale throughput via an expanded retail network – currently across West 49’s portfolio Billabong has a brand share of approximately 15%
Increases Billabong’s participation in an important distribution channel including greater influence over the store environment and brand image presented to consumers- Provides the opportunity to expand on West 49’s current platform to enhance premium action sports retailing in the Canadian market
-  Provides North American retail expertise and efficiencies for Billabong’s expanded retail network
- Enhances retail presence providing Billabong with faster feedback on consumer trends and the ability to test product
- Provides increased branding opportunities, which in turn will drive demand
- Broadens Billabong’s banner portfolio to better target key Canadian demographics via West 49’s banners.
(Above: A West 49 store in Vancouver. Shop-eat-surf file photo. All rights reserved.)
Key strategy
Acquisitions are a key part of Billabong’s strategy. Other companies Billabong has bought include: Element, Von Zipper, Honolua, Palmers, Kustom, Beach Culture, Amazon, Xcel, Tigerlily, Quiet Flight, Sector 9, DaKine, Swell, Becker Surf and Surf Stitch.
West 49 is publicly traded, and the board has recommended the sale be approved. Two-thirds of shareholders who vote on the deal must approve it and Canadian courts must also give approval.
(Right: West 49 Inc. VP/GMM Pete Kershaw and CEO Sam Baio. Shop-eat-surf file photo. All rights reserved.)
Billabong has already secured the approval of major shareholders that represent approximately 56% of shares.
The deal is expected to close in September.
In the meantime, West 49 can consider and accept a superior proposal. Billabong has matching rights, and the right to be paid $2.5 million as a “break-up fee” if another buyer is chosen.
Canada on radar
Expanding in Canada is part of the strategy of several action sports companies retailer of late. Zumiez recently told Shop-eat-surf that is has plans to expand there, starting in Vancouver. And shoe retailer Journeys, an important customer for skate shoe brands, has opened three stores in the Toronto area.
Click here to read Billabong’s press release about the acquisition.
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