Billabong and Altamont revise deal to address Takeovers Panel concerns

Altamont Capital Partners and Billabong have renegotiated several elements of their refinancing agreement to satisfy concerns raised by the Australian government’s Takeovers Panel.

This latest development in the ongoing Billabong saga likely means that the company is moving closer to finalizing its relationship with Altamont and to formally installing Scott Olivet as CEO, who currently is working as a consultant.

Billabong still needs to gain shareholder approval for some elements of the deal, and a shareholder meeting will take place before the end of October, the company said.

Oaktree Capital Management and Centerbridge Partners, who bought Billabong’s debt at a discount and made a play for Billabong after the Altamont deal was announced, had filed a complaint with the Takeovers Panel claiming several pieces of the complex deal were unfair.

The Takeovers Panel did raise questions about the magnitude of the break up fee, the interest rate that would be charged if certain provisions were not approved by shareholders, and the “make whole” premium to be charged if there was a change of control.

The panel alerted Billabong that it was going to make an unfavorable ruling in the matter, and Altamont and Billabong revised their agreement as a result, according to a Takeovers Panel press release. After the objectionable items were eliminated, the Takeovers Panel declined to rule against the deal.

Now that the break up fees and some other provisions have changed, it remains unclear if Centerbridge and Oaktree – or another company – will make another run at Billabong.

Altamont statement

Altamont Capital Partners released the following statement about the Takeovers Panel’s ruling:

“We are pleased to be moving forward with our agreement with Billabong. After discussions with the Takeovers Panel and on-going constructive negotiations with Billabong, we and the company have agreed to a revised proposal.  As the previous agreement also ensured, the revised Altamont Consortium deal secures the future of Billabong, an iconic Australian company that employs approximately 6,000 people and distributes its products through over 10,000 stores in Australia and worldwide.  In addition to the financial support, our deal provides Billabong a dynamic and proven executive in Scott Olivet, a veteran active sports industry leader, former CEO of Oakley and senior executive at NIKE.

“We are excited to work with the Billabong board, Scott and the rest of the management team to move the company forward and begin the process of rebuilding the company and shareholder value.  Billabong owns an exciting portfolio of brands that have been constrained from realizing their full potential. By stabilizing the balance sheet and leadership team, and allowing the company to focus on its business, we believe that the Altamont Consortium transaction will enable Billabong to finally have a clear path toward realizing that potential.

“The Altamont Consortium has been engaged in months of due diligence, studying the business and developing plans to turn the company around. As a result our transaction represents a comprehensive solution for Billabong shareholders. Not only did we provide liquidity to the company at a crucial time when no one else offered a similarly actionable solution, but we are also investing in the long-term future of the business. Our transaction addresses the balance sheet issues with immediate liquidity and expanded availability to fund growth, as well as an option to inject equity to support an appropriate level of leverage.  In addition, we will install strong management to implement a plan for restoring sustainable and profitable growth.  We are here as long-term partners for the company.”

See Page 2 for details about how the agreement changed

Details of changes in agreement

Here is a breakdown of how the agreement with Altamont changed based on concerns expressed by the Takeovers Panel.

This information is from a press release issued by Billabong:

Break Fee: Previously, if Billabong did not use commercially reasonable efforts to pursue the long term financing and completed an alternate financing, or was subject to a change of control, in each case on or prior to 15 January 2014, any prepayment or repayment of the Bridge Facility utilizing such alternate financing or on such change of control was subject to a premium equal to 20% of the principal amount of the Bridge Facility. The revised commitment letter no longer contains the 20% premium and instead includes a break fee in the amount of A$6 million.

Convertible Tranche/35% per annum rate: It was previously proposed that Billabong would issue a US$40m (A$44m) convertible note to the Altamont Consortium (“Convertible Note”) as part of the proposed long term financing. Subject to shareholder approval, the Convertible Note would convert into Redeemable Preference Shares (“RPS”). The interest rate applicable to the Convertible Note was to be 12% per annum, however initially and until obtaining shareholder approval for the issue of the RPS, the interest rate was to be 35% per annum. Under the revised commitment letter, the previously proposed Convertible Note has been removed.

Term Loan: The size of the term loan base commitment has been increased from US$200m (A$221m) to US$275m (A$304m) with an upsize commitment of US$35m (A$39m). The interest payable on the base commitment will be 15% per annum, payable quarterly, of which not less than 7% must be payable in cash and up to 8% may be paid in kind. The interest payable on the upsize commitment will be 10% per annum payable quarterly in cash.

RPS: The Altamont Consortium has agreed to take up US$60m (A$66m) of RPS2 with a 0% coupon, subject to shareholder approval. The RPS in the original commitment letter had a 12% per annum dividend entitlement. The proceeds of the subscription by the Altamont Consortium for the RPS must be applied towards the prepayment of the term loan, with no make whole premium.

Make Whole: Previously, mandatory prepayments included a make whole premium upon a change of control. This has been removed and instead, upon a change of control, Billabong is required to offer to prepay the term loan at a 1% premium.

Option Strike Price: Billabong agreed to issue options to the Altamont Consortium amounting to 15% of the fully diluted share capital of the Company (including the options). The options were to be granted in multiple tranches, with the first tranche of options issued on 16 July 2013 with a strike price of A$0.50 per share. The balance of the options to be issued to the Altamont Consortium on completion of the long term financing also had a strike price of $0.50. The strike price on the balance of the options has now been changed to $0.01.