Australia’s Takeovers Panel has forced Altamont and Billabong to amend a July 16 $827 million financing agreement that would have given the private equity firm a 40.49 per cent stake in the distressed surf wear brand.
Altamont rivals Oaktree Capital Management and Centerbridge Management on July 18 sought to block the deal by appealing to the Takeovers Panel, arguing the Billabong board had not given adequate consideration to their own proposal.
Oaktree and Centerbridge have made no decision as to whether they will challenge a revised $586 million financing proposal by Altamont announced by Billabong today in an ASX statement.
Billabong and Altamont say they will now take up to three weeks to finalise documentation on new financing conditions. The Gold Coast-based company plans to hold a shareholders meeting by the end of October to seek approval for the revised Altamont deal.
“It continues to be the intention of all directors” to recommend Altamont’s proposal, says Billabong.
The changes potentially open the door for rival offers for Billabong, though market observers were backing Altamont to succeed.
“This is the most likely thing to go through,” said Invast Securities analyst Peter Esho.
Shares in Billabong, which have surged 134 per cent since July 16, rose as much as 8 per cent today to 61 cents. At 1324 AEST the stock was up 2 cents, or 3.5 per cent, at 58.5 cents.
Billabong says Altamont has agreed to scrap a 20 per cent fee based on the principal amount of a $325 million bridge loan if there was a change of control of Billabong before January 15, 2014, or if the loan was repaid by December 31.
“The magnitude of the fee acted as a lock up device with the effect of deterring rival proposals,” says the Takeovers Panel. Altamont will now charge a $6 million break-up fee.
The Takeovers Panel says the proposed interest rate on a US$40 million tranche of long-term financing by Altamont, if shareholder approval to convert the tranche into shares was not obtained, “amounted to a naked no vote break-up fee”.
This fee “was likely to coerce Billabong shareholders to approve the issue of a controlling interest in the company,” says the Takeovers Panel.
Billabong says Altamont has agreed to remove the convertible note under its revised financing offer. Altamont will now subscribe to a $66 million security that carries a zero per cent coupon but is redeemable into Billabong stock at 22.8 cents a share. The private equity firm’s shareholding in Billabong under the terms of the security would be 33.3 per cent. Scott Olivet, the chief executive proposed by Altamont, would end up with a 1.7 per cent stake in Billabong. Olivet was formerly an executive at Oakley and Nike.
Altamont’s long-term financing required its loans to be repaid if Billabong came under the control of another group or company, plus payment of a “make whole” premium should the loan be repaid in the first two years.
“This premium, and the circumstances under which it was payable, had the capacity to deter rival proposals,” says the Takeovers Panel.
Billabong now says Altamont has scrapped the make-whole premium upon a change of control. If a change of control occurs, Billabong will be required to repay the $343 million loan at a 1 per cent premium. The interest on the loan is 15 per cent, 7 per cent in cash and 8 per cent payment in kind.