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UPDATE 2-TPG walks away from $713 mln Billabong bid; shares tumble

* Second bidder exits after inspecting books

* Billabong shares tumble 16 pct to record low

* Company says focused on internal turnaround plan

(Adds shares)

SYDNEY, Oct 12 (Reuters) - Private equity firm TPG has withdrawn a A$694 million ($713 million) takeover bid for Australian surfwear retailer Billabong International Ltd , the second bidder to exit after inspecting its books, knocking the stock to a record low.

Neither TPG nor Billabong gave a reason for the withdrawal, but the move caps a tumultuous year for Billabong. Three takeover bids have failed, the company dumped its chief executive in May after several profit warnings and it revealed its first annual loss since listing a decade ago.

"When two bidders have walked away after seeing the books, the first question in investor minds is: what is hiding in the books? The TPG withdrawal is a big negative for the stock," said Stan Shamu, market strategist at IG Markets.

Billabong shares tumbled 16 percent to 84.5 cents a share in morning trade, a record low for the stock that was trading at ten times that level less than two-and-a-half years ago.

Deutsche Bank in a note to clients dated last week put a fundamental valuation on the stock of 85 cents a share.

TPG's withdrawal means shareholders will have to rely on the company's recently outlined four-year plan to simplify the business in the hope of reviving falling sales and restoring profitability, analysts said.

Billabong Chief Executive Launa Inman declined to comment on the bid withdrawal at a media conference call on Friday, saying she was pushing forward with her plan to revive the firm.

"I have been focussed on the transformation strategy," said Inman, who previously headed discount chain Target, owned by Wesfarmers Ltd . "The next three months are crucial."

The surfwear retailer has suffered falling sales in Europe, Canada and Australia as the brand has been losing its cachet with young shoppers.

Billabong has already conceded investors would have to wait two years to see the biggest benefits of the new strategy.

SERIES OF APPROACHES

Billabong was initially approached by TPG in February but rebuffed an offer of A$3.30 a share, opting instead to sell half of its watch brand Nixon and raise A$225 million in equity to reduce debt.

The stock continued to sag and TPG, which has a 12.5 percent stake in the company, returned with a reduced bid in July. Rival buyout firm Bain came in with a bid in September, only to drop out two weeks later.

Billabong shares fell sharply below TPG's offer price of $1.45 last week when the buyout firm said it had "concerns in relation to some issues" over the bid.

The environment for retailers in Australia has been tough with nimbler online rivals competing aggressively on price and Australians switching to savings in the wake of the global economic crisis.

Government figures showed the nation's retail sales rose just 0.2 percent in August from July, when they slipped 0.8 percent.

Billabong's competitors include Quiksilver Inc , Pacific Sunwear of California Inc , Zumiez Inc and Rip Curl.

Rip Curl said last month it had received unsolicited approaches from several international companies wanting to invest in the privately held firm, in a deal that could fetch up to A$480 million. ($1 = 0.9735 Australian dollars)

(Reporting by Narayanan Somasundaram; Editing by John Mair and Richard Pullin)

((narayanan.somasundaram@thomsonreuters.com)(+61 2 93731815)(Reuters Messaging: narayanan.somasundaram.reuters.com@reuters.net))

Keywords: BILLABONG TPG/