Revised Billabong terms approved

Australian regulators have accepted a revised Billabong takeover bid, having rejected its previous proposal that included a 20% break-up fee.

Having dropped the terms deemed unacceptable by Australian regulators, Billabong's takeover agreement from a consortium of investors led by Altamont Capital Partners can proceed, although it could now face competition from rival bidders. 

This week, the Australian Government Takeovers Panel said the $294 million bridge facility to be provided to the surf-wear maker by the Altamont Consortium was acceptable, according to a statement from the regulator. 

The decision comes after the Altamont and Billabong decided to drop the A$65 million (€43.7 million; $58.4 million) break-up fee included in the agreement, among other clauses deemed unacceptable. The panel had described the “magnitude” of the 20 percent fee as a “lock-up device, with the effect of deterring rival proposals”, the statement said. 

In Australia, break-up fees on deals have a limit of 1 percent of the equity value of the deal, a local industry lawyer told Private Equity International. However, as Billabong is in a significant amount of financial distress, investors thought the limit could be stretched.

“The reasoning in a distressed situation break fees may be higher is because there is higher risk being taken by the buyer and if the deal isn’t done, then the group may fall into some kind of third-party receivership or liquidation that obviously wouldn’t be good for anybody,” the source explained. 

While the Altamont bid can now go ahead, the revised terms open up the process to other investors interested in taking over the ailing business. US private equity firms Centerbridge Partners and Oaktree Capital Management are now considering whether to make a last minute bid, according to local media reports. 

It seems to be a growing feature of this market that we’ve not only got traditional private equity sponsors, we also now have a lot of special opportunity or alternative investment groups looking at debt pieces as well

Sydney-based industry lawyer

Oaktree was also a senior lender to Nine Entertainment, a former portfolio company of CVC Capital Partners. Last year, CVC ceded control of the business to the firm and Apollo Global Management in a $3.4 billion debt-for-equity swap that handed CVC a loss of about $2 billion – the biggest private equity loss ever in Asia Pacific. 

PEI's source said that there are more special situations groups going into the country and looking at different parts of the capital structure as a way of doing deals. 

“It seems to be a growing feature of this market that we’ve not only got traditional private equity sponsors, we also now have a lot of special opportunity or alternative investment groups looking at debt pieces as well,” he explained.

“On the debt side after the investment, we’ve seen a number of groups [do this] such as MediaWorks in New Zealand, which just went down the same path with the lenders taking over that investment.”