Billabong to rewrite takeover deal

Takeover Panel forces Altamont to change some terms of debt-for-equity swap.

Two snubbed US hedge funds have lost an appeal to the Takeovers Panel over a refinancing deal struck between private equity firm Altamont Capital and struggling retailer Billabong International (BBG), but its protest has forced the parties to rewrite their deal.

The parties agreed to lower their termination fee, which the Takeovers Panel had "acted as a lock-up device, with the effect of deterring rival proposals".

The panel also said that the high interest rates attached to a US$40 million convertible note as part of the proposed long term financing the deal was coercive, amounting to a “naked no vote” break fee.

Altamont has struck out the convertible note under the revised deal.

US funds Centerbridge Partners and Oaktree Capital had argued that the Altamont deal was anti-competitive and coercive.

However, the Takeovers Panel said today that it declined to make a ruling against the deal after the parties agreed to introduce revised terms.

The deal, finalised last month, saw Altamont take a stake of up to 40% of Billabong in exchange for $325 million in debt refinancing. Billabong's board has sold the bag and outerwear business, Dakine, to Altamont for $70 million.

Another provision ditched on advice from the Takeovers Panel, was a payment of “make-whole” premium, which the panel said had the capacity to deter rival proposals.

The long term financing required the loan to be repaid in the event of a change of a control of Billabong, plus payment of a “make-whole” premium should the loan be repaid in the first two years. The make-whole premium was 10% of the principal plus interest that would have been payable during that two years.

Instead, Billabong will be required to prepay the term loan at a 1% premium upon a change of control.

Under the revisions made, the termination fee has been reduced from 20% of the $325 million bridging facility, to $US6 million.

The original deal provided that Billabong pay the 20% premium if there was a change of control in the group, it pursued an alternative financing deal, or did not use "commercially reasonable efforts" to pursue the long-term financing, before 15 January.  

Finalising revisions to the deal was expected to take up to three weeks.

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