The largest shareholder in Billabong International could emerge with almost full control of arch rival Quiksilver if the now-US based surf and skate wear retailer emerges from bankruptcy.
Oaktree Capital Management will own more than 90 per cent of the shares in Quiksilver and will take the company private if a US court approves a $US600 million ($853 million) refinancing proposal, new details of which emerged this week.
The US-based private equity firm owns 18.7 per cent of Billabong International following a similar $350 million refinancing of the Gold Coast-based company two years ago.
Oaktree is rumoured to be exploring a merger of the two retailers, which are leading players in the $19 billion global action sports market, as part of its longer term turnaround plan.
Last September, one of Quiksilver's bankers, Durc Savini from Peter J Solomon Co, told a US court that Oaktree may consider combining Quiksilver with Billabong "at some point".
However, both Quiksilver and Billabong management have tried to downplay speculation of a merger.
Quiksilver was founded in Victoria's Torquay almost 50 years ago by Alan Green and John Law, who started making board shorts in their garage.
The company is now based at Huntington Beach in southern California and is currently listed on the New York Stock Exchange.
At its peak, Quiksilver was worth more than $US2.3 billion, but it has struggled in recent years after taking on too much debt and making a series of failed acquisitions, including ski brand Rossignol in 2005.
The company reported a $US309 million loss last year after sales tumbled 13 per cent.
Under the refinancing proposal, Quiksilver's group debt is expected to fall from $US900 million to less than $US300 million, reducing gearing and freeing up funds to reinvest in its core brands, which include Quiksilver, Roxy and DC Shoes.
Oaktree, which owns about 73 per cent of Quiksilver's $US279 million in senior notes, plans to swap its debt for equity and buy any remaining shares not sold in a rights offering to existing bond holders.
Quiksilver has also proposed changes to its board, with three Oaktree representatives – former Billabong non-executive director Matthew Wilson, David Tanner and Thomas Casarella – joining Quiksilver's global chief executive Pierre Agnes.
Mr Wilson stepped down from the Billabong board last September, citing an unexplained "conflict of interest" relating to Oaktree's investment portfolio.
Quiksilver's European and Asia-Pacific operations, including Australia, were never part of the bankruptcy filing and have been trading normally.
Speculation that Billabong and Quiksilver could eventually merge boosted Billabong's shares briefly last year.
However, Billabong shares have been losing ground since a five to one share consolidation and disappointing trading update last November. Billabong chief executive Neil Fiske warned that earnings would come under pressure in the short term from the weaker Australian dollar and poor demand in North America.
The stock, which was trading at $2.50 immediately after the consolidation, fell 9¢ to $1.56 on Wednesday.
Co-founder Gordon Merchant, who previously rejected offers for the company at $4 a share (pre-consolidation), has been snapping up shares, restoring his stake to more than 12 per cent.
Australian analysts believe a merger of the two retailers is not out of the question, as there would be significant synergy benefits and cost savings.