Markets: A carrot for Billabong

Oaktree and Centerbridge have upped the ante on Billabong’s board by telling them they can close their $325 million debt and equity financing for the distressed surf wear this week. That puts the board in a bind. The board favors an alternate $325 million financing package offered by Altamont Capital. Billabong’s spokesman Chris Fogarty told Markets Spectator the company favours the proposal that offers certainty to a business that reported a $536.6 million loss in the six months to December 2012. Oaktree and Centerbridge say their deal offers just that.

The Billabong battle has dragged on 540 days and some of the word’s biggest names in private equity, including Bain Capital and TPG, have come and gone. In addition to saying they can get the formal documentation on their debt and equity financing done this week, Oaktree Capital and Centerbridge Partners have cunningly put an option that is so ‘in the money’ that Billabong’s board will be hard pressed to justify a rejection of it to fund managers in favor of Altamont.

Oaktree and Centerbridge say they will buy $150 million of Billabong stock at 36.1 cents, an 80 per cent premium over what Altamont is willing to pay for Billabong’s stock or 19.9 cents a share. But the real clincher for the Oaktree and Centerbridge proposal for many fund managers is that they, along with other Billabong shareholders, will be allowed to come in and buy stock in the company at 30 cents a share.   

Billabong shares closed Friday at 58.75 cents, a 49 per cent premium over the proposed rights issue Oaktree and Centerbridge have put forward for Billabong investors. That’s going to be very attractive to many who were brave enough to take a chance on the company after it fell as low as 12.2 cents on June 21.

If the Billabong board does its fiduciary duty, Oaktree and Centerbridge will become the new owners of the once proud surf wear brand. The battle between Altamont and the two US distressed investors has helped propel Billabong shares to increase of 135 per cent since July 16. That was the day when Billabong revealed Altamont’s debt and equity investment in the company. Altamont’s proposal was quickly challenged by Oaktree and Centerbridge. They appealed to the Takeovers Panel saying their proposal was not given serious consideration by the Billabong board.

If Oaktree and Centerbridge can get their formal financing documentation in place this week they will have offered a very large carrot to the Billabong board and may garner a formal acceptance of the offer, especially as investors will be in the board’s ear telling them to do so.