Billabong breakup fee `unacceptable’

Altamont Capital’s proposed A$65m break-up fee arrangement for the refinancing of troubled Australian surfwear retailer Billabong is under fire from shareholders.

A break-up fee agreed by Altamont Capital Partners, GSO Capital Partners and Australian surfwear retailer Billabong is being described as “unacceptable” by the Australian Shareholders’ Association (ASA), a shareholder lobbying group .

Earlier this month, Billabong entered into agreements to refinance its debt with GSO Capital Partners, the credit arm of The Blackstone Group, and an Altamont-led group. The agreements involve an A$325 million ($294 million; €228.5 million) bridge loan facility with a break-up fee of A$65 million. 

Rival bidders are not interested in making rival bids for Billabong because if they successfully outbid Altamont and GSO, the A$65 million break-up fee would be too much of a drain on Billabong's resources.

Position of the Australian Shareholders’ Association

The ASA wants the Australian Takeovers Panel to force the two lenders to reduce the agreed break-up fee, which they believe to be too high. Break-up fees cover a buyer's due diligence costs for broken deals. ASA argues that rival bidders are not interested in making rival bids for Billabong, because if they successfully outbid Altamont and GSO, the A$65 million break-up fee would be too much of a drain on Billabong's resources. 

In a statement ASA said that the break-up fee equates to 20 percent of the debt, adding that break-up fees in Australia don't usually exceed 1 percent of the equity value of a transaction.

However the relatively large break-up fee could be a result of a prolonged bidding process for Billabong, which a high break-up fee could end, said Mark McNamara, partner in King & Wood Mallesons’ Sydney office.  

“People have had the chance to look at this for a long time. It reached a point where the [Billabong] directors had a deal they were prepared to take and thought it was the best available,” said McNamara, who believes Australia's Takeovers Panel will look into the Billabong deal. 

“There will be a lot of circumstantial considerations for [the Takeovers Panel], but it’s still a very large fee and outsized to where the market has been on these things.”

Billabong's bridge loan will last until 31 December 2013. However, shareholders could be at risk if Billabong fails to improve its revenues and the senior lenders convert their debt into equity, senior equity analyst Tim Montague-Jones told Private Equity International earlier.