Quiksilver and Billabong to merge

THE parent of the Quiksilver surfwear brand has agreed to acquire rival Billabong International Ltd . , combining two of the largest active sports brands at a time when the industry is undergoing a major shakeout.

The combination would create a global player with ubiquitous brands, about $2 billion in annual sales and 630 stores in 28 countries. But both Quiksilver and Billabong have struggled in recent years with declining sales and corporate restructurings.

Boardriders Inc., formerly known as Quiksilver Inc., of Huntington Beach, Calif., is paying roughly A$400 million (US$315 million) for its Australian competitor, according to a person familiar with the situation.

The deal values Billabong at A$1 a share, or a slight premium to its closing price on Australia’s stock exchange on Wednesday, the day before the deal was announced.

Both companies expanded rapidly in the 1990s by selling board shorts, skateboarding T-shirts and, later, snow gear. But they have struggled as the once-hot surf, skate and activewear industry has cooled and they found themselves with too many stores in too many malls. They also lost customers as the athleisure trend exploded with varying types of sports apparel now found in most specialty and department stores.

Billabong has been losing money and closing stores. Quiksilver filed for bankruptcy protection in 2015 and emerged in 2016. It changed its name to Boardriders a year later. It is privately owned and majority-controlled by the investment firm Oaktree Capital Management, which also owns a 19% stake in Billabong and is one of the company’s senior lenders.

“The rapid growth of the 1990s and 2000s led to overexpansion,” said Dave Tanner, an Oaktree managing director who will become chief executive of the combined company. “Many of the players were operationally undisciplined and took on too much debt.”

Other streetwear brands that have limited their distribution have fared better recently. For example, Supreme, a skateboard brand with just 11 stores and limited product releases, recently sold a 50% stake to private-equity firm Carlyle Group for nearly $500 million, the Journal reported.

Oaktree, which invests in distressed companies, took control of Quiksilver when it, along with other bondholders forgave debt in exchange for equity. Mr. Tanner guided the company through a turnaround by cutting costs, scaling back distribution and overhauling its product development practices to make them faster and more cost-efficient. The company is now profitable, according to Mr. Tanner.

Mr. Tanner said he plans to preserve the combined company’s 11 brands, but reduce costs by merging back-end operations such as finance, distribution and technology. No major store closures are planned.

Boardriders’ current CEO, Pierre Agnes, will become president of the combined entity. Boardriders is discussing whether there is an appropriate role for Billabong CEO Neil Fiske, the company said.

The transaction is subject to regulatory and shareholder approval and is expected to close in April. - WSJ

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