The Takeovers Panel has labelled key terms around a $US294 million rescue package and recapitalisation plan for struggling surfwear group Billabong as unacceptable, forcing a reworking of the proposal by private equity group Altamont and its partners to get the deal over the line.
Altamont and US investor giant Blackstone were chided for three key planks of their capital injection and partial takeover of Billabong and in particular the steep interest rates flowing from the proposal, as high as 35 per cent, and a weighty break fee that served to deter rival takeover bids.
The proposal had the effect of handing nearly 40 per cent of Billabong to its private equity suitors.
In its findings handed down on Wednesday the Takeovers Panel, a peer review body that regulates corporate control transactions and presides over takeover disputes, said a $65 million break fee to be paid by Billabong to its private equity white knight, Altamont, if it walked away from the deal was akin to a "lock-up device".
The panel also found an interest rate of 35 per cent on the proposed $US40 million convertible note for redeemable preference shares and options served to coerce Billabong shareholders to lodge a "yes" vote.
"The magnitude of the 35 per cent interest rate and the circumstances under which it was payable amounted to a 'naked no vote' break fee, which was likely to coerce Billabong shareholders to approve the issue of a controlling interest in the company."
A third requirement that Billabong repay the entire $US294 million loan plus 10 per cent of the principal plus interest in the event of a change in control of the company in the first two years would also deter rival takeover bids.
The panel said it had decided to declare the original Altamont deal unacceptable despite the bridge facility and long-term financing arrangements negotiated at a time when Billabong was drowning in debt and urgently needed funds.
It was brought in to inspect the takeover transaction when rival and losing bidders Centerbridge Partners and Oaktree Capital lodged a complaint in July.
Under a new proposal worked out between Billabong and Altamont, the break fee has been slashed to $6 million and the $44 million convertible note removed. The term loan has been increased from a base of $221 million to $304 million, with an upsize commitment of $39 million.
The 12 per cent to 35 per cent interest rate charge Billabong would have paid on the convertible note has been lowered to 15 per cent. Interest on the upsize commitment is now 10 per cent.
If there is a change of control Billabong will only be required to repay the term loan at a 1 per cent premium.
Billabong said yesterday it expected documentation around the new deal to take two to three weeks.
It will then seek shareholder approval. Altamont said the new deal secured Billabong's future.
Shares in Billabong ended up half a cent to 57¢.