The Gold Coast, Australia-based target had disclosed the emergence of a second potential bidder two weeks ago and allowed it to begin nonexclusive due diligence. That suitor, which Billabong never identified, had offered "around A$1.45," but now "has withdrawn from the process," Billabong said.

Billabong said the sale process is continuing but reiterated that a deal won't necessarily result.

Billabong shares fell A$0.11, or 7.3%, to A$1.34, following the announcement, well below TPG's indicative A$1.45-per share, or A$694.5 million ($721.9 million), offer.

TPG has been conducting due diligence since late July. Its approach is conditional and nonbinding, and Billabong has said it hopes the investor will raise its bid following due diligence.

TPG's July proposal came five months after Billabong's board, and its founder and leading shareholder, Gordon Merchant, had rejected a sweetened A$3.30 per share bid from the Fort Worth, Texas investor.

After TPG's unsuccessful February bid, Billabong replaced CEO Derek O'Neill with Launa Inman, former managing director of retailer Target Australia Pty. Ltd. It issued a profit warning and raised A$225.4 million in a heavily discounted share sale that increased the number of Billabong shares in issue by 86%.

Billabong, whose brands include Element, VonZipper, Honolua Surf Co. and Tigerlily, has also been closing stores to combat a sales downturn in Australia, Europe and Canada.

On Aug. 27, Billabong posted a net loss of A$275.6 million for the year ended June 30 because of exceptional items, with revenue down 7.9% at A$1.55 billion. CEO Inman initiated a turnaround program designed to increase 2012 pro forma Ebitda of A$84 million by 2.5 times over four years.

TPG has the backing of Colonial First State Investment Ltd. and Perennial Value Management Ltd., which together hold 12.5% of Billabong.

Under TPG's proposal, Merchant, who owns about 17% of the company, and Colette Paull, one of Billabong's earliest employees, would have the right to roll their shareholdings into a new vehicle. Both had opposed TPG's earlier approach, with Merchant calling in February for a bid worth more than A$4 per share. He has since publicly regretted that stance.

Billabong's advisers are Goldman, Sachs & Co. and law firm Allens.