Billabong International Ltd. (BBG)’s $294 million refinancing deal with a group led by Altamont Capital Partners is anti-competitive and should be reviewed by takeover regulators, the Australian surfwear company’s lenders said.
Terms attached to the deal “are anti-competitive and coercive”, the Takeovers Panel cited an application from Oaktree Capital Management LP and Centerbridge Partners LP as saying in a regulatory statement today. The Panel won’t grant their initial request to delay the agreement, the regulator said in a separate statement after the stock market closed.
The two distressed-debt investors, which have bought about A$289 million in Billabong’s syndicated loans, were rebuffed in a rival refinancing offer made to Australia’s largest surfwear company yesterday. Their proposal isn’t “capable of acceptance”, Billabong said yesterday.
Oaktree and Centerbridge “very much had a view that they were going to make money” through a debt-for-equity swap, Ben Clark, a portfolio manager at TMS Capital Pty., said by phone from Sydney. “They’ve been blindsided by Billabong’s intention to pay that debt back straight away” through the deal with Altamont.
Billabong “disagrees with the basis for the application” and will respond to it in line with the Takeover Panel’s process, the Gold Coast, Australia-based company said in another statement to Australia’s stock exchange today.
The Panel may still consider an order to stop the process should circumstances change or if it decides to hear the debt funds’ appeal, the body said today. It didn’t comment on the merits of the application.
The surfwear company, founded by Gordon Merchant in 1973, has breached terms on its debt, fired employees, and shuttered stores as it struggled to control its debt amid a sales slump.
Its shares have dropped 78 percent since Launa Inman took over as chief executive officer last May, and the company has been fielding takeover and recapitalization plans for all but five weeks of that period.
The stock rose 9.6 percent to 40 Australian cents at the close of trade in Sydney today, on trading volume almost five times the three-month average.
“At least there seems to be a bit of competitive tension there now,” Clark said. “The worst that could happen is that business continues to deteriorate while this plays out.”
While Oaktree and Centerbridge had already approached the company before Billabong made the deal with Altamont announced July 16, there hadn’t been enough detail for the board to make a decision, Billabong Chairman Ian Pollard told a media event in Sydney yesterday.
“We had no piece of paper that had any numbers on it, let alone a proposal,” he said.
The more detailed offer from Oaktree and Centerbridge was delivered to Billabong at 2:15 p.m. Sydney time yesterday, according to an e-mail from Marsha Jacobs, a Sydney-based external spokeswoman for the debt funds at John Connolly & Partners in Sydney.
That proposal was “subject to conditions, a number of which are incapable of satisfaction, and others which would make any refinancing far less certain than under the Altamont consortium transactions,” the surfwear company said yesterday.
Under the agreement Billabong made with entities associated with Altamont and Blackstone Group LP, Billabong will pay off the A$289 million in loans bought by Oaktree and Centerbridge by selling its DaKine brand to the consortium for A$70 million and taking a $294 million bridging loan.
The Altamont group could end up with 36 percent to 40 percent of the company, and appoint Altamont’s two co-founders to Billabong’s board, which currently has seven members, according to a statement from Billabong.
The distressed-debt funds’ proposal would instead see A$189 million of the loans canceled in exchange for a 61 percent stake in Billabong, with the balance of A$100 million repaid using a six-year loan with an interest rate of 8 percent. The Australian company would retain its DaKine brand and the funds would seek a majority of board seats.
The offer “is a superior proposition that will optimize the prospect of Billabong effecting its turnaround plan,” according to the e-mailed statement from the funds.
In their application to the Takeovers Panel today, the funds said that an initial interest rate of 35 percent on convertible debt that Billabong will issue to the Altamont group, along with a termination fee of A$65 million, are “lock-up devices” which restrict competition.
The panel should remove the terms and delay the funding of a bridging loan and the sale of Billabong’s DaKine brand -- both scheduled to take place around 22 July -- until it makes a decision, according to the debt funds.
Billabong’s market value peaked at A$3.84 billion in June 2007 before falling to as little as A$62 million June 24 amid uncertainty about its future, after it ended takeover talks with Sycamore Partners LP and said it was discussing refinancing deals with Sycamore and Altamont.
A former surfboard-shaper and the company’s largest shareholder, Gordon Merchant told Billabong’s board in February 2012 that he wouldn’t support an offer as high as A$4 a share if it were made by TPG Capital, the private equity group run by David Bonderman.
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