Quiksilver and private equity firm Rhone are proposing a debt for equity swap that could lead to Rhone owning 30% of Quiksilver’s outstanding shares.
Rhone came to the rescue of cash-strapped Quiksilver last year by loaning the company $150 million at a steep 15% interest rate.
At the time, Rhone also acquired warrants to buy some Quiksilver stock at roughly $1.86 per share.
Here’s a summary of the deal proposed Tuesday, which requires stockholder approval:
Rhone will exchange $75 million of the outstanding loan for 16.7 million shares of stock at the exchange rate of $4.50.
Quiksilver has the option to require Rhone to exchange an additional $65 million of the loan balance for additional shares at the same price within 60 days of the first deal being signed. Quiksilver said it will pursue other equity financing options during the period to consumate this option.
If the exchange proposed today is approved, Rhone will own 24.2% of outstanding shares, in addition to the warrants it previously acquired. If Quiksilver is able to exercise its option and exchange more shares to pay down the additional $65 million, Rhone will own 30%.
If approved by shareholders, the exchanges are expected to close by the end of Quiksilver’s fiscal year, Oct. 31.
All told, the deal could decrease Quiksilver’s debt by $140 million. Quiksilver reported net debt of $733 million at the quarter ended April 30.
On Page 2: The press release.
Here’s the full release.
HUNTINGTON BEACH, Calif.–(BUSINESS WIRE)–Quiksilver, Inc. (NYSE:ZQK – News) today announced that it has entered into an agreement with Rhône to exchange $75 million of the outstanding principal amount of Quiksilver’s senior secured term loans for an aggregate of approximately 16.7 million shares of its common stock at an exchange price of $4.50 per share. The closing share price of the company’s common stock on the New York Stock Exchange on June 14, 2010 was $4.47.
In addition, under the agreement, Quiksilver has an option, exercisable in its sole discretion, to require Rhône to exchange up to an additional approximately $65 million of the remaining outstanding principal amount of senior secured term loans for additional shares of common stock at the same price per share.
This option is available for a 60-day period following execution of definitive documentation relating to the transaction. As of April 30, 2010, the outstanding principal balance of the senior secured term loans was approximately $159.4 million. Quiksilver intends to pursue alternative equity or equity-related financing during the option period, proceeds of which would be used to repay the senior secured term loans.
The proposed transaction, which would be accretive to the company’s earnings, was approved by Quiksilver’s independent directors. In announcing the agreement, Robert B. McKnight, Jr., Chairman of the Board, Chief Executive Officer and President of Quiksilver, Inc., commented,
“This exchange offer is an important step toward further de-leveraging our balance sheet and will provide us with additional operating flexibility in an improving business environment. Additionally, the Rhône offer demonstrates a real vote of confidence by a major investor who is willing to commit to a further equity investment amid a volatile stock market. We believe that stockholders will recognize the substantial value of this endorsement.”
Rhône currently owns warrants to acquire approximately 16.2% of the outstanding shares of Quiksilver’s common stock on an as-exercised basis, based on the number of outstanding shares as of June 4, 2010.
Upon consummation of the initial $75 million debt-for-equity exchange, Rhône would own approximately 24.2% of the company’s outstanding shares including the shares issuable upon exercise of the warrants. If Quiksilver exercises the option in full, Rhône would own approximately 30.0% of the company’s outstanding shares, including the shares issuable upon exercise of the warrants.
In connection with the debt-for-equity exchange transactions, Quiksilver and Rhône would enter into a stockholders agreement, pursuant to which, among other things, Rhône would be subject to certain transfer and standstill restrictions and would be entitled to certain customary information rights, participation rights and registration rights.
Rhône’s two designated directors will continue to serve on Quiksilver’s board of directors. If, following the exercise of the option, $30 million or less in aggregate principal amount remains outstanding under the senior secured term loans, under the agreement, Rhône has agreed to modify the minimum EBITDA financial covenant contained in the senior secured term loans.
The issuance of the common stock to Rhône in the debt-for-equity exchanges is subject to stockholder approval. The exchange transactions, if approved by stockholders and exercised by the company, are subject to other customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and would be expected to close during the fiscal year ending October 31, 2010.
IMPORTANT INFORMATION
Quiksilver intends to file a proxy statement with the Securities and Exchange Commission (the “SEC”) in connection with the exchanges discussed above. Stockholders should read the proxy statement and other relevant documents when they become available because they will contain important information about the exchanges.
The proxy statement, any amendments or supplements to the proxy statement, and other relevant documents filed by Quiksilver with the SEC will be available for free at www.sec.gov and at Quiksilver’s website, www.quiksilverinc.com, or by writing to: Quiksilver, Inc., 15202 Graham Street, Huntington Beach, California 92649, Attn: Chief Financial Officer.
Quiksilver and its executive officers, directors and other members of management may be deemed participants in the solicitation of proxies from Quiksilver’s stockholders with respect to the exchanges. Information regarding Quiksilver’s participants in the solicitation appears in Quiksilver’s definitive proxy statement for its 2010 annual meeting, which was filed with the SEC on February 12, 2010. Additional information regarding their interests, equity and otherwise, will be included in the proxy statement to be filed in connection with the exchanges.
About Quiksilver
Quiksilver, Inc. (NYSE:ZQK – News) is the world’s leading outdoor sports lifestyle company, which designs, produces and distributes a diversified mix of branded apparel, footwear, accessories, snowboards and related products. The Company’s apparel and footwear brands represent a casual lifestyle for young-minded people that connect with its boardriding culture and heritage.
The reputation of Quiksilver’s brands is based on outdoor action sports. The Company’s Quiksilver, Roxy, DC, Lib Tech and Hawk brands are synonymous with the heritage and culture of surfing, skateboarding and snowboarding.
The Company’s products are sold in over 90 countries in a wide range of distribution, including surf shops, skate shops, snow shops, its proprietary Boardriders Club shops and other company-owned retail stores, other specialty stores and select department stores. Quiksilver’s corporate and Americas’ headquarters are in Huntington Beach, California, while its European headquarters are in St. Jean de Luz, France, and its Asia/Pacific headquarters are in Torquay, Australia.
About Rhône
Rhône was founded in 1996 and has offices in New York, London and Paris. Rhône focuses on middle-market private equity investments in businesses with pan-European or trans-Atlantic presence or growth prospects. Rhône’s investment philosophy includes the development of strong, strategic partnerships with the management of portfolio companies in which it is investing. Rhône currently has investments in a diversified portfolio of companies.
