Oaktree and Centerbridge triumph against the odds

Billabong’s board was slowly convinced the two US distressed debt funds had the best numbers, and the winning nominee CEO.

Two weeks ago Oaktree Capital Management and Centerbridge Partners LP quietly told Billabong International Ltd. they had found a chief executive who could turn around the surf-wear retailer, even after it made a $859.5 million annual loss.

The Billabong board's attitude toward the hostile bid from the two US distressed-debt funds changed after they heard the name of the proposed CEO: Neil Fiske.

Fiske is a heavy hitter. He turned around two American retailers, Bath & Body Works and Eddie Bauer, which he led through bankruptcy and returned it to its active outdoor roots. Suddenly, Billabong’s board, which had inked a deal with Altamont Capital Partners, was interested in what Oaktree and Centerbridge were proposing.

Encouraged by the board’s response, Oaktree and Centerbridge on Friday instructed banker Chris Wyke of Moelis & Co. and lawyer Dominic Emmett of Gilbert Tobin to improve an offer for the company to about $400 million, from $325 million.

On Wednesday morning, Billabong's board began to seek details on Oaktree and Centerbridge’s offer. After seven takeover approaches, board members wanted to nail it down. By 9 pm on Wednesday night Billabong had satisfied itself the Oaktree and Centerbridge refinancing and equity investments were watertight. A deal was signed.

Just two months ago it seemed unlikely Oaktree and Centerbridge would emerge the victors. The two firms had purchased $289 million of Billabong debt. They flew to the Gold Coast to talk to Billabong only to be rebuffed. Oaktree and Centerbridge were told their debt would be paid out and the company had struck a deal with Altamont Capital Partners.

The Altamont deal contained certain restrictive features. It neutered Oaktree and Centerbridge’s ability to put forth a competing proposal. The two firms appealed to The Takeovers Panel.

Altamont amended its transaction as a result of the application by Oaktree and Centerbridge to The Takeovers Panel. The pair then put forward a competing proposal on August 23, saying their deal would save the company between $120 million and $143 million in interest payments a year compared to Altamont’s.

But Altamont’s proposal still had the board’s formal endorsement. The board’s continued backing was based around what they saw as Altamont’s certainty of execution and the ability of its CEO nominee Scott Olivet, a former top executive at Oakley and Nike, to drive a turnaround. This outweighed the superior economics of the Centerbridge and Oaktree offer.

But partly through pressure from the Australian Shareholders Association and hedge fund Coastal Capital, Billabong’s board was forced to consider the Oaktree and Centerbridge offer. Advised by Goldman Sachs Group Inc. and law firms Allens Linklaters and Sidley Austin, the surf-wear maker's board slowly came to the conclusion Oaktree and Centerbridge's proposal made better sense financially. The name of Fiske gave Billabong confidence they had a leader who could turnaround the embattled retailer.

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