THE Billabong saga took another twist today as the Gold Coast-based surfwear group dumped a controversial debt deal with former suitor Altamont Capital Partners in favour of a more attractive offer from US hedge funds Centerbridge Partners and Oaktree Capital Management.
The move also makes way for the company’s third chief executive in less than two months as the new financiers have opted for US-based retail veteran Neil Fiske to be appointed chief executive and managing director – deposing Altamont’s anointed head, the former Nike boss Scott Olivet.
Billabong says it has entered a binding agreement with Centerbridge and Oaktree to repay the $US294 million ($309.5 million) bridge loan it secured from Altamont just a month ago.
Although Billabong is up for a $6 million break fee for dumping Altamont, the company says the move is in the best interests of shareholders who will benefit from a lower interest rate and a more favourable dilution of their existing stake under the terms of the Centerbridge deal.
Under the new arrangement, Billabong will be able to access up to $US360 million ($A379 million) in funds, compared to $US303 million previously allotted by Altamont, while the interest rate will be slashed from 13.5 to 11.9 per cent.
Centerbridge also has offered Billabong a six-year secured term loan for the facility, compared to a five-year term under Altamont.
Billabong also will raise a further $A185 million through a share placement to the Centrebridge-Oaktree consortium (at 41c a share) and an additional $A50 million through a rights issue to existing Billabong shareholders (at 28c a share).
These funds will be used to repay part of the $A379 million term loan forwarded to Billabong by Centerbridge.
Billabong says it also will continue to have access to the previously arranged $A150 million line of credit from GE Capital.
Billabong says the new refinancing arrangement will provide the company with a “stronger balance sheet and capital structure to allow it to stabilise the business, address its cost structure, and pursue a strategy to grow the business”.
“In fully evaluating the competing refinancing proposals, on a range of factors, the board determined that the C/O (Centerbridge/Oaktree) Consortium proposal was in the best interests of the company, its shareholders, its employees and other key Billabong stakeholders, on both economic terms and in providing near term certainty,” says Billabong’s chairman Ian Pollard.
“The proposal was significantly improved compared to the C/O Consortium’s previously announced proposal and offered lower financial leverage and cheaper cost of funds with lower equity dilution than the Altamont proposal plus the ability for existing shareholders to participate alongside the C/O Consortium via the rights offering,” Pollard says.
“As Billabong continues to restructure its operations globally, the need for immediate long-term funding certainty and a strong financial base from which to reinvigorate an iconic group of brands is best met by entering into this agreement now.”
While shareholders had previously applauded the prospect of Olivet taking the reins at Billabong, incoming CEO Fiske is a 24-year veteran of the retail sector.
Most recently he was an industry partner to Canadian private equity firm Onex, advising on retail strategies.
Previously, Fiske was CEO of Eddie Bauer where he helped turn the company’s fortunes around under private equity ownership.
Altamont will retain ties to Billabong though 42.2 million options already granted to it and expiring in 2020.
But under the new refinancing deal, the Centerbridge/Oaktree consortium also will be granted 29.6 million Billabong options exercisable at 50c in seven years.
Under this arrangement, Billabong’s existing shareholders could see their interest in the company diluted by as much as 40.8 per cent, which is down from a maximum of 44.3 per cent under Altamont’s dumped proposal.
The proposed refinancing deal and capital raisings will go to a shareholders’ vote at the company’s annual general meeting to be held in November.
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