US private equity groups Centerbridge and Oaktree are considering whether to make a last-minute bid for Billabong after a Takeovers Panel ruling opened the company up to rival takeover offers, according to a report by the Australian.
Besides Billabong, the company's brands include Element, Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Xcel, Tigerlily, Sector 9, Dakine and RVCA brands. It also owns Canada's West 49 chain.
The panel has forced major changes to a $294 million recapitalization deal that had already been agreed between Billabong and the U.S. private equity group Altamont. Centerbridge and Oaktree had complained that it contained restrictive and anti-competitive terms designed to prevent the target company from accepting a rival bid.
The panel yesterday said a $65 million break-up fee Billabong had agreed to pay Altamont if it pulled out of the deal was a “lock-up device, with the effect of deterring rival proposals,” while a 35 percent interest rate payable on a $40 million convertible note, payable if shareholders did not agree to convert the debt into preference shares, was “likely to coerce Billabong shareholders to approve the issue of a controlling interest in the company”.
In addition, rival bidders would be also deterred by a requirement that Billabong needed to repay the entire $294 million plus 10 percent of the principal as well as interest, if the company was acquired by another investor within two years.
The Takeovers Panel said it had intended to make a declaration of unacceptable circumstances, which could have prevented the deal from proceeding, but the companies have renegotiated the terms of the recapitalization and reducing the break-up fee to $6 million. Other changes included dropping the convertible note from the refinancing package and lowering the interest rate on a $304 million term loan from 15 percent to 10 percent and removing a 12 percent dividend payable on $66 million of preference shares Altamont was to buy from Billabong.
The premium payable on the debt if Billabong is taken over has also been reduced to 1 percent.
With the penalty for accepting a rival bid — costs that would be passed on to any acquirer — now greatly reduced, Centerbridge and Oaktree are understood to be mulling a renewed offer, according to the Australian.
Centerbridge and Oaktree, which levered themselves into the takeover negotiations in July by buying up the $289m worth of debt Billabong owed to a consortium of banks, have previously proposed a deal that they say would result in lower debt levels for Billabong than the Altamont deal and would not require the company to sell its sports bag business Dakine.
The panel noted that the deal had been negotiated when Billabong was urgently in need of funds and had been under threat of takeover. Billabong said it would now put together final documentation for the Altamont deal, ahead of a shareholder meeting to vote on the recapitalisation before the end of October.
The Billabong board would unanimously recommend that shareholders vote in favour of the deal, subject to an independent expert's report and in the absence of a superior proposal.
