Billabong Surges After $294 Million Debt Deal With AltamontDavid Fickling
Billabong International Ltd. rose to its highest level in more than two months today after the surfwear company struck a refinancing deal that could hand a 40 percent stake to a group led by Altamont Capital Partners.
Shares in the Gold Coast, Australia-based company rose 34 percent to 33.5 Australian cents at the close of trade in Sydney, the highest since May 6. The country’s largest surfwear maker, which had breached terms on its debt and shut stores as sales slumped, will borrow $294 million from U.S. private equity investors to pay off its syndicated loans.
“We have never had concern with Billabong’s brand potential, but have been concerned about solvency,” Craig Woolford, a Sydney-based Citigroup Inc. analyst, wrote in a note to clients yesterday. “We believe that risk is now greatly diminished.”
Billabong’s market value rose to A$160 million ($148 million), still less than five percent of its peak A$3.84 billion in June 2007. It’s fired employees and sold new shares to raise cash over the past 18 months, while rejecting at least two takeover bids in less than two years.
The company will also sell its DaKine brand to Altamont for A$70 million and Chief Executive Officer Launa Inman will be replaced by Scott Olivet, former chairman of sunglasses maker Oakley Inc. under the agreement.
“It’s not going to be an overnight story,” Chairman Ian Pollard said in a telephone interview late yesterday. “There are still some years of hard work to be done.”
Analysts at JPMorgan Chase & Co. and Commonwealth Bank of Australia yesterday both raised their 12-month price targets to 35 cents, from 19 and 18 cents respectively, according to data compiled by Bloomberg.
A group associated with Altamont and Blackstone Group LP’s credit arm GSO Capital Partners will provide a bridging loan, which with cash from the DaKine sale, will repay A$289 million in Billabong’s syndicated debt facilities. The loan will also provide A$106 million for Billabong’s working capital.
Altamont and General Electric Co.’s GE Capital will also provide a long term financing package for Billabong, according to the statement.
The Altamont consortium will be issued with share options and $40 million in convertible debt, which together could give it an ownership stake of between 36 percent and 40 percent, according to the statement. The options can be exercised for A$0.50 per share within seven years of being granted, for a cash value of A$42.3 million, Billabong said.
Jesse Rogers and Keoni Schwartz, co-founders and managing directors of Altamont, will be appointed to the board under the agreement, according to the statement.
“There is still a lot to be done to transform the company’s business,” Rogers said in a separate statement. “But with the company’s liquidity issues behind us, I’m confident that we will be able to now focus on building upon the strong brand equity of Billabong and the portfolio companies.”
Under the long-term financing agreement, the Altamont consortium will provide a $254 million term loan, according to yesterday’s statement. Billabong also signed a commitment with GE Capital for an asset-based multicurrency revolving credit facility of up to $160 million.
U.S. hedge funds Centerbridge Partners and Oaktree Capital Management, which bought about A$300 million of Billabong’s debt, made an unsolicited proposal to the company today seeking to take a 60 percent equity stake, the Australian Financial Review reported, without saying where it obtained the information.
Billabong spokesman Chris Fogarty confirmed an unsolicited and non-binding proposal from the hedge funds was received this morning and indicated the company was focused on its refinancing agreement with the Altamont group.
“We have entered into an agreement and we are focused on the business and the brands,” Fogarty said by phone.
Billabong was founded by Gordon Merchant in 1973 when he started cutting board shorts in his kitchen and selling them to Gold Coast surf shops, according to the company’s website. As the sport gained popularity, Billabong’s sales and earnings soared. Its fortunes turned as major stores introduced their own surf brands and the financial crisis cut consumer spending.
Billabong and Merchant, still the largest shareholder, rebuffed a takeover approach from TPG Capital worth almost A$842 million last year. TPG and another bidder later made lower offers but walked away after viewing Billabong’s accounts.
The company announced June 4 that it had entered refinancing discussions with Sycamore Partners Management and Altamont, after takeover talks with the two suitors ended.
Five members of Billabong’s banking syndicate have sold out of their loan holdings, three people familiar with the matter said July 3.
Equity in the business is worth less than the A$225 million it raised selling new stock to shareholders last year. It’s also less than the value of about A$289 million put on its inventory of clothes and accessories at Dec. 31, according to the company’s most recent balance sheet.
Billabong’s brands, which also include Element and RVCA, were valued at A$614 million before a 38 percent writedown in its annual results last June, and were further written down to A$149 million at the end of December.
The Billabong brand was estimated by the company to be worth A$30 million at the end of last year, or just 6.8 percent of its A$435 million value in December 2011.
Trading in the U.S., where the company has gained market share over the past six months, is ahead of forecast, outgoing CEO Inman said in a telephone interview yesterday after the announcement.
“Retail continues to be challenging here in Australia,” she said. “In Europe we haven’t really seen any signs of green shoots.”
Global sales are expected to fall to a six-year low this year, based on the average of 10 analysts’ estimates compiled by Bloomberg.
“In hindsight always things could have been better,” Inman said. “What’s important is that we have created a way forward.”