The Billabong Deal- A Second Offer Appears and is Rejected

There are various articles flying around (and on Billabong’s web site) that tell us Oaktree Capital Management LP and Centerbridge Partners LP made an offer for Billabong yesterday (or the day before- I get confused about what day it is in Australia). As you know, the Altamont Consortium made, and Billabong accepted, an offer to buy Dakine, provide short term financing to pay off debt and, by the end of the year, roll that into a longer term loan. Here’s my article on that deal

In late June, Oaktree and Centerbridge, both distressed debt funds according to the articles, bought $289 million in Billabong loans at a discount from the original lenders. These are to be paid off by Altamont’s interim financing. According to this article from Bloomberg, Oaktree and Centerbridge “…“very much had a view that they were going to make money” through a debt-for-equity swap, Ben Clark, a portfolio manager at TMS Capital Pty., said by phone from Sydney. “They’ve been blindsided by Billabong’s intention to pay that debt back straight away” through the deal with Altamont.”
They bought the debt from Billabong’s banks at some discount, so are already positioned to make a profit when Altamont repaid it. But not being satisfied with that, they made their own offer for Billabong. That offer, according to the same article, “…would instead see A$189 million of the loans canceled in exchange for a 61 percent stake in Billabong, with the balance of A$100 million repaid using a six-year loan with an interest rate of 8 percent. The Australian company would retain its DaKine brand and the funds would seek a majority of board seats.”
This article says that Billabong has agreed to study this new proposal.  It further says that incoming CEO Scott Olivet would remain in that position. It’s not clear if he has agreed to that, or if it’s just an offer or assertion by Oaktree and Centerbridge.
 They also asked the Australian Takeover Panel to review the deal, saying it was “…anti-competitive and coercive.” The panel declined to stop the deal but said they could review it, as reported here. I don’t know what the possible outcomes of such a review are. Here’s what the panel actually said. “A sitting Panel has not been appointed at this stage and no decision has been made whether to conduct proceedings. The Panel makes no comment on the merits of the application.”
Meanwhile, we’re told in yet another article (you may not be able to access this unless you set up an account) that:
“Since Tuesday’s unveiling of the Altamont deal, Centerbridge and Oaktree have ramped up the pressure on Billabong, saying the company had refused to see their representatives despite a team of 10 or more flying in from the US to pitch a proposal.
Billabong chairman Ian Pollard has been intransigent.
He has said Centerbridge and Oaktree were invited many times last week to submit a proposal but refused on every occasion.
In the end, the chairman said Billabong had "executed the only executable transaction", which was the Altamont deal.
Despite Centerbridge and Oaktree claiming their proposal was superior and unconditional, Billabong said on Thursday it was subject to conditions that could not be satisfied, making any refinancing "far less certain" than the deal with Altamont.”
Here’s Billabong’s official response to these media reports from a release on their web site:
“The position is as follows:
1. The Company has received today a proposal from the Centerbridge/Oaktree Consortium.
2. This proposal was received by the Company after the Company had entered into the binding
bridge facility and DaKine sale agreement with the Altamont Consortium announced on 16
July 2013, which themselves followed an exhaustive process undertaken by the Company.
3. 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 those requests, the Centerbridge/Oaktree Consortium failed
to do so.
4. The proposal that has now been received from the Centerbridge/Oaktree Consortium is not
an offer that is capable of acceptance. The proposal is subject to conditions, a number of
which are incapable of satisfaction, and others which would make any refinancing far less
certain than under the Altamont Consortium transactions.”
What I think is going on here is that Centerbridge and Oaktree wanted to use the leverage from the debt they’d bought, which I believe was due and payable, as a way to get a chunk of equity in Billabong. Altamont’s offer to Billabong, which would have resulted in that debt being paid off next Tuesday or so, would keep that from happening, and they aren’t happy about that.
I guess what will be interesting to see is whether Centerbridge and Oaktree have created enough uncertainty on the part of Altamont and its partners to cause this transaction to be delayed. Remember, they have signed a deal with Billabong and I have no idea what that deal might or might not say about conditions under which the closing can be delayed. 
I kind of hope the deal just gets done so Billabong can get back to running its business.