Iconic surfwear company Billabong (BBG) has finally agreed to an asset sale and debt refinancing deal with US private equity firm Altamont, which is now well positioned to take control of the business.
After 16 months of speculation around its future, the deal breathed new life into Billabong’s share price today, as it soared 39% to $0.35 as of 12pm.
The deal includes the sale of the Dakine sports brand to Altamont and an agreement to refinance Billabong, allowing it to immediately repay existing debts in full.
Altamont will partner with fellow US private equity company Blackstone to provide a $325m bridging debt facility, while a further $70m will be raised through the sale of Dakine.
The combined total of $395m will repay Billabong's $289m debt and give the company $106m in working capital to keep the business operating until a long-term finance strategy is organised.
This package is intended to provide Billabong with a flexible capital structure so that it can stabilise the business, address its costs and begin to grow again.
The agreement with Altamont includes the departure of Billabong's chief executive officer, Launa Inman, hired in the role only last May, and the start of a new era under former Oakley chief Scott Olivet.
Altamont’s potential future ownership in Billabong could be between 36% and 40%, should it exercise its share options and convert its redeemable preference shares.
These shares are usually issued for a specific time period and when a company has growth plans in mind, as is the case for Billabong now.
Finally a deal after rough ride
It’s been an uncertain year for Billabong, with the company tumbling into the red after declaring a $275.6m loss for the 2011-12 year and writing down its assets.
After earlier restructures and the failure of two other promising bids from both TPG Capital and Bain Capital in 2012, Billabong’s share price continued to plunge from around $1.00 per share earlier this year.
Then Altamont and another potential US-based buyer, the Sycamore Consortium, began competing for the company and the future looked brighter.
Sycamore was being led by former Billabong director and president of its American business, Paul Naude, together with his financial backers Sycamore Partners and Bank of America Merrill Lynch.
While the company’s share price continued its fall, this group examined Billabong’s books as part of its $527m takeover offer.
Due to Naude’s history with the company since 1998, Sycamore seemed likely to complete the bid. However, talks stalled and the share price moved closer to rock bottom last month.
"Future profitable growth"
After agreeing to this new deal, Billabong said today that the Altamont Consortium presented the “best available” opportunity in challenging times.
Refinancing the company and providing stability appear to have been crucial to any proposal being finalised and Altamont is said to be meeting those requirements.
“The transaction reflects the Altamont Consortium’s confidence in the value of Billabong’s brands and our company’s ability to achieve future profitable growth,” said Billabong chairman Ian Pollard.