Billabong’s Deal. I Didn’t See This One Coming.

I thought the Altamont deal would happen. I figured Billabong just had to get a deal done. That’s what they were doing until Centerbridge Partners and Oaktree Capital Management (we’ll call them the Consortium as Billabong does) asked the Australian Government’s Takeover Panel to take a look at the deal. 

Basically, the Consortium claimed that the deal with Altamont kept anybody else from bidding, and the Takeover Panel agreed. Billabong and Altamont changed the deal terms to satisfy the panel, and that opened the door for the Consortium to come in with what looks to me, and everybody else, like a better deal.
 
I imagine you’ve read the terms of the agreement in various places, so I’m not going to spend a lot of time on that. In Australian Dollars, Billabong is getting a six year $386 million term loan with a lower 11.9% interest rate compared to 13.5% from Altamont. They will use this to pay off the $315 million loan they previously received from Altamont.
 
They will sell $135 in equity to the Consortium and give existing shareholders the chance to buy another $50 million of shares at $0.28 per share. It will be interesting to see who goes for that. Depending on the success of that offering and Billabong’s cash flow requirements, some of that new equity will be used to pay down part of the term loan.
 
The Consortium will get 29.6 Billabong options exercisable at $0.50 a share. The $150 million asset based credit facility from GE Capital is still part of the deal.
 
Billabong will have to pay Altamont a $6 million breakup fee, and Altamont will continue to hold 42.3 million Billabong options that expire July 16, 2020. And Dakine is still sold.      
 
Okay, that’s enough. If you’re a shareholder, you care a whole lot about the specific terms of the deal. Hell, if you’re a shareholder you probably wish you’d never heard of Billabong. In any event, if you want more details here’s the link to the announcement on Billabong’s web site.   It’s currently the first item under “Recent News.”
 
Here are a few questions/comments I’m left with:
 
1)      We know West 49 is for sale. I wonder when that deal will happen and what the price will be.
2)      Will any other brands be sold? I expect new CEO Neil Fiske might undertake a strategic evaluation similar to what happened at Quiksilver and Skullcandy when a new CEO came in and the decisions will flow from that.
3)      Both Altamont and the Consortium will have seats on the Board of Directors for some time. That should be fun.
4)      For all the sound and fury and distraction of the deal cycle, the key question is what kind of market strength the Billabong brands will have going forward.
5)      What happens to the plan former CEO Inman started to implement? Will that, in whole or part, be out the window?
6)      What will be the specifics of the asset based credit line? That will have a lot to do with how much of the $150 million line is actually available to borrow at a given time.
 
I’m just glad the deal is finally done. I agree with Billabong’s Board of Directors, who put it like this in the release:
 
“The Board of Billabong decided that it was in the best interests of shareholders and all of the
Company’s stakeholders to conclude a long term financing as soon as possible. The Board of
Billabong had regard to the protracted period of uncertainty, distraction and disruption that had
been faced by the business and have entered into the long term refinancing so that the
Company can now focus on rebuilding the business and execute on its ambitions to improve
earnings.”
 
For those of us who don’t own shares, I suspect we’re mostly glad for our friends who have jobs there, and hope Billabong can just focus on building its brands and supporting the industry.