Illustration: Rocco Fazzari.
INVESTORS in the chronically underperforming surf and ski wear company Billabong have again had their hopes raised at the prospect of being bought out of their misery - having received a whiff that one of the directors is talking to parties about a leveraged buyout deal.
At this stage it looks like a renegade executive director, Paul Naude, who has a very small holding in Billabong, is talking to a private equity group about getting a bid together.
Had it not been for the fact that Naude was involved this sketchy deal would not have (and should not have) been heralded to the market.
This is the kind of behind the scenes playing that often goes on but never sees the light of day. Its disclosure is testament to governance principals rather than common sense.
Under normal circumstances a public announcement about this situation would be very premature. And arguably the market is now very poorly informed.
According to Billabong, Naude was approached by an interested party - the name of which has not been officially disclosed but is known to the board. Given Naude has thrown his hat in the ring with these predators he has almost certainly jeopardised his chances of staying in his role at Billabong if a deal cannot be executed.
Despite the fact there is very little known about what Naude and his contacts are up to, the Billabong share price has skyrocketed. No offer price has been mentioned and no proposal, formal or informal, has been made.
It is not unheard of for management to become involved with leveraged buyouts and there are plenty of instances where this has resulted in a deal and ultimately a handsome profit for executives. Myer is a recent example of a plan that went to plan.
Qantas is a fairly recent example (2007) of one that didn't. In this case the senior management and board were in the loop but the shareholders knocked it back.
The Qantas management from this era are now taking a second look at ways to gain control - albeit not with a full offer.
But this one-man breakaway is highly unusual.
Meanwhile when it comes to potential buyers, Billabong has a habit of getting to various stages of dating and then being dumped before it gets to the altar. Over the past year private equity firms TPG and Bain took a look at the Billabong numbers and on closer inspection lost their nerve to make a formal offer.
There was never any official explanation given as to why these private equity holders got cold feet.
While the company has reiterated its earnings guidance, the fact the previous suitors walked after doing due diligence will continue to be a source of concern.
Because he is going it alone Naude has needed to stand down from his role at Billabong while he talks to potential investors.
It is a difficult position to take. The company says that Naude did not initiate discussions with outside parties but he was clearly willing to be enlisted to assess whether a deal can be done and has taken this role on with gusto.
''Mr Naude has advised that he is seeking to hold discussions with potential financiers, both debt and equity, to gain their support for a potential change of control transaction of Billabong,'' Billabong said in a statement.
This implies that under a different management Billabong's fortunes could be resurrected.
The issue is that Naude is intimately acquainted with how Billabong is travelling and what it might be worth, even if he is not allowed to hand any of this information on to his partners. He is Billabong's president of the Americas and a member of the board and therefore a perfect conduit for would-be private equity partners.
The board won't be enjoying this new turn of events. Despite the fact that the outgoing chairman, Ted Kunkel, said at the annual meeting last month that the company was open to all comers interested in a takeover, the reality is that the recently minted management, under Launa Inman and chairman Ian Pollard, would undoubtedly prefer to get on with turning around the troubled retailer.
Meanwhile, Billabong's founder and largest shareholder, Gordon Merchant, has not been a party to Naude's plan and has said nothing about his view on the latest turn of events.
While the board might not be enamoured with a new bout of takeover interest, the large institutional shareholders would be keen to see the share price receive some new life.
They were highly critical of Merchant and the board for rejecting TPG's $1.45 indicative offer earlier this year.
Given this history the company will be obliged to offer any real suitors the chance to do due diligence, but only if it's a legitimate buyer sufficiently financed and capable of transacting a deal.
At this stage Naude's move looks more like a punt than a certainty.