July 16, 2013 1:05 pm

Billabong replaces chief as it strikes refinancing deal with US

Billabong Ends Talks Saying TPG's $906 Million Bid Still Too Low©Bloomberg

Billabong surf wear clothing has lost favour with the young

Billabong International has parted company with Launa Inman, chief executive, after striking a A$325m (US$294m) refinancing agreement that could lead to a group of US investors led by Altamont Capital Partners controlling the company.

The complex deal, which will allow Billabong to repay nearly A$300m of debts, could see the Altamont consortium emerge with a 40 per cent stake in the company if a bundle of share options and preference shares is converted.

Ms Inman, who was in the job for a little more than a year, will be replaced by Scott Olivet, the former chairman and chief executive of Oakley, the manufacturer of high-performance sunglasses. Billabong said the appointment was a condition of the refinancing agreement, which also includes the sale of the Dakine brand to Altamont for A$70m.

“We had highlighted the company’s debt position and it was imperative to deliver a refinancing agreement that retained an opportunity for shareholders to participate in the future of the company,” said Ian Pollard, Billabong chairman. “The Altamont consortium presented the best available, certain and executable opportunity in these challenging market circumstances.”

San Francisco-based Altamont and another private equity group, Sycamore Partners, have been in discussions with Billabong since the turn of the year. Both groups made offers to buy the company for A$527m, or A$1.10 a share, but the deals failed to materialise in part because of poor trading and the uncertainty over the outlook for earnings.

Billabong issued its third profit warning in six months in early June, blaming weak trading in Australia and start-up costs associated with a new venture in Europe.

The company’s brands, which include RCVA and Element, have fallen out of favour with younger consumers while an ill-timed expansion left the company weighed down by debts and A$400m of lease obligations.

The company’s market capitalisation had shrunk from A$3.7bn in 2007 to just A$120m before its shares were suspended at A$0.25 cents on Tuesday.

Traders said the timing of the deal was interesting. It comes just weeks after Oaktree Capital Management and Centerbridge Partners acquired all of Billabong’s A$289m of senior debt. The US hedge funds were expected to convert their loan into equity if Billabong had failed to refinance its debt facilities, which were due to expire in July 2014.

The Altamont consortium presented the best available, certain and executable opportunity in these challenging market circumstances

- Ian Pollard, Billabong chairman

Under the terms of the Altamont deal, which requires shareholder approval, Billabong will sell the Dakine brand and issue options in return for a A$325m bridging loan that will be used to pay off the senior debt.

The options have a strike price of A$0.50 cents and convert into a 15 per cent equity stake in the company.

The bridging facility will be replaced at the end of the year by a long-term, high-interest loan of A$281m. In addition to the term loan, Billabong will also issue a A$44m loan convertible into shares. These have a strike price of A$0.25 cents and if fully exercised will give the consortium, which includes the credit arm of Blackstone Group, a further 25 per cent stake in the company.

Mr Olivet has been working as an adviser to Altamont. The group of investors led by Altamont has the right to nominate two directors to the board.

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