Billabong’s board is now in a bind.
After weeks of trying to maneuver California-based Altamont Capital Partners into becoming its financier and controlling shareholder, Billabong’s board confronts a superior offer from the rival private equity firms Los Angeles-based Oaktree Capital and New York-based Centerbridge Partners.
The dueling deals are each worth $325 million of debt and equity. But Oaktree and Centerbridge say they will buy Billabong shares at an 80 per cent premium to Altamont’s offered price and dilute existing shareholding equity by the same amount as Altamont – and yet offer a lower interest rate and lower level of debt to Billabong than Altamont can.
Under Oaktree and Centerbridge’s offer, Billabong faces a debt burden of $158 million at a 10 per cent per annum interest rate. Altamont is prepared to lend $276 million at a yearly interest rate of 14.3 per cent.
A person familiar with the matter says that under the Oaktree and Centrebridge offer, Billabong would save about $120 million in interest payments alone over five years.
Altamont is prepared to pay $66 million to buy 39.2 per cent of Billabong at 19.9 cents a share.
Oaktree and Centerbridge are prepared to pay $150 million or 36.1 cents a share for a 39.7 per cent Billabong stake, 80 per cent more than Altamont.
More equity comes into Billabong under the Oaktree and Centerbridge proposal at the same level of shareholding dilution that Altamont has put forward. Moreover, Oaktree and Centerbridge are prepared to allow Billabong’s existing shareholders to pay 30 cents a share under a rights issue of $32.5 million.
Moelis & Company, who advised Oaktree on its acquisition of the Nine Network, are advising Oaktree and Centerbridge. The two firms together control US$96.4 billion in assets. Altamont manages US$500 million in assets.
Goldman Sachs is advising Billabong. Chris Fogarty, Billabong’s spokesman, didn’t return a call seeking comment.
Oaktree and Centerbridge say they are open to former Oakley chief executive Scott Olivet becoming Billabong’s CEO. But Oaktree with 750 staff in 13 countries can pull in highly credentialed sportswear and retail executives if Olivet decides he would not want to work for anyone other than Altamont.
Oaktree and Centerbridge started buying the debt of Billabong in the last week of June and the first two weeks of July with a view to taking control of the distressed surf wear brand.