Oaktree crashing Billabong's wave

Unloved for so long, Billabong's the centre of an increasingly ferocious stoush.

Centerbridge Partners and Oaktree Capital have asked the Takeover Panel to examine theirs and rival private equity group Altamont Capital Partners competing offers to finance and acquire Billabong after the clothing retailer’s board of directors dismissed Centerbridge and Oaktree’s proposal as “not an offer that is capable of acceptance”.

“A sitting Panel has not been appointed at this stage and no decision has been made whether to conduct proceedings,” said the Takeover Panel in a statement today. “The Panel makes no comment on the merits of the application.”

Australia’s Takeover Panel was formed as a forum for takeover disputes and can “declare circumstances unacceptable in relation to a takeover,” according to its web site.

Centerbridge and Oaktree want Billabong to put the competing financing and takeover proposals to shareholders by October 31. Billabong shareholders would then vote on what proposal they favor.

At 1221 AEST Billabong shares rose 4 cents, or 11%, to 40.5 cents, after earlier rising as much as 16% to 42 cents.

The stock has surged 71% this week after Billabong said on June 16 it has agreed to a US$294 million Altamont financing package that would refinance Billabong’s existing debt. As part of the deal Altamont was issued with options that represent 15% of Billabong’s stock (see Roger Montgomery's Billabong poised for a turnaround).  

Billabong has also signed commitment letters with Altamont and GE Capital to provide a long term financing package for Billabong. They include a loan of US$254 million, the issue of a convertible note with a face value of US$40 million, convertible into redeemable preference shares and a US$160 million revolving credit facility.

Billabong has said if it doesn’t use all its efforts to pursue the Altamont deal and completes alternative financing or if it is acquired by a company other than Altamont  before January 15, 2014 so the Altamont bridge loan is repaid by December 31, a termination fee that is reported to be as much as $65 million will be owed.

Billabong and its bankers at Goldman Sachs did not return calls seeking comment.

Centerbridge and Oaktree told the Takeover Panel Billabong’s Altamont deal is “anti-competitive and coercive”.

“The applicants submit that there has been no disclosure of the terms of the exclusivity arrangements or the details of the circumstances in which the termination fee may be payable,” says the Takeover Panel. “The applicants seek interim orders, including that drawdown of the bridge facility and completion of the Dakine sale, both anticipated to occur on or around 22 July 2013, be delayed until the Panel makes its determination. The applicants seek final orders, including that clauses relating to the termination fee and the convertible note increased coupon be removed.”

Yesterday Centerbridge and Oaktree said they are committed to providing Billabong with immediate liquidity through the company’s existing financing arrangements.

The two private equity firms are willing to extend loans to Billabong to meet working capital needs. Centerbridge and Oaktree say they will evaluate potential restructuring, recapitalization, refinancing or other similar transactions.

Billabong board said yesterday in an ASX statement that the Centerbridge and Oaktree takeover proposal is too little, too late.

Centerbridge and Oaktree’s proposal “was received by the company after the company had entered into the binding bridge facility and the Dakine sale agreement with the Altamont sale consortium,” Billabong says. “Prior to the company entering into the transactions with the Altamont consortium, the company made numerous requests to the Centerbridge, Oaktree consortium to submit a refinancing proposal. Despite these requests (they) failed to do so.”

Oaktree and Centerbridge say their proposal will save Billabong $150 million over five years compared to the Altamont deal. 

The buyout firms say their “simple and sustainable capital structure” is at 1.5 times debt divided by 2013 estimated earnings before interest, tax, depreciation and amortization (EBITDA). This compares with 4.8 times debt divided by 2013 estimated EBITDA under the Altamont proposal, say Centerbridge and Oaktree.

“The proposal that has now been received from Centerbridge and Oaktree is not an offer that is capable of acceptance,” say Billabong. “The proposal is subject to conditions, a number of which are incapable of satisfaction and others that would make any refinancing far less certain than under the Altamont transactions.”

Centerbridge and Oaktree’s public relations firm in Australia declined comment.