Billabong saga closed: Shareholders left with “no viable option” except to approve Oaktree and Centerbridge

Billabong shareholders have overwhelmingly approved the 40% takeover of the retailer by US hedge funds Oaktree Capital and Centerbridge Partners.

At a meeting yesterday shareholders approved the issue of 329 million shares at 41 cents per share to the hedge funds, concluding an 18-month sale saga which saw the surfwear retailer’s share price plummet.

In September last year Oaktree and Centerbridge offered a $386 million debt and equity rescue package for Billabong, after it failed to reach a deal with either Sycamore Partners or the consortium of Altamont Capital and VF Corporation.

Billabong chairman Ian Pollard told shareholders yesterday the deal will allow the retailer to “continue with its turnaround with lower overall risk of future financial constraints.”

Pollard says an independent expert had found shareholders would be better off by accepting the proposed deal.

The independent report by corporate advisory group Grant Samuel found the “completion of the placement and the associated rights issue will allow Billabong to materially lower its gearing, reduce its financial risk and improve its profitability and free cash flow.

“It will provide a ‘breathing space’ for Billabong, allowing board and management to focus on stabilising and then re-building the business rather than dealing continuously with ownership and financing issues.”

However, Pollard emphasised Billabong still had a long way to go.

“I reminded shareholders that we still face a number of hurdles in our reported profitability and expect this year’s results to include more significant costs associated with reinvesting in and restructuring the business,” he says.

“While we have been greatly encouraged by both local and international investor interest showing in the turnaround strategy post the AGM, along with a willingness to be part of it, those financial realities detailed in December remain with us today.”

Billabong posted a full-year loss of $859.5 million last year, as its global sales revenue fell 13.5% to $1.34 million in reported terms compared to the previous year.

Market analyst with OptionsXpress Ben Le Brun told SmartCompany Billabong shareholders had no choice but to accept the offer from Oaktree and Centrebridge.

“Ultimately shareholders had their hands tied because without these companies coming in and effectively saving Billabong it had no future,” he says.

“Its earnings had dropped off a cliff and it was struggling in key markets such as Australia and America. The Australian Shareholders Association voiced some concerns and asked if shareholders had all the up-to-date information, but as it had more than 90% of shareholder acceptance, in my mind this means shareholders knew it was the only viable option.”

Le Brun says the brand has a chance to be saved, but it’s got a long way to go yet.

“It has the cash backing and the shareholders now have a diluted shareholding. They have the backers to keep the wolves from the door and they no longer have to worry about selling brands and raising capital,” he says.

“I do think it’s brighter times ahead, but many people have thought that in the past few years and been easily burnt.”

Le Brun says the brand needs to be “reimagined and reinvigorated”.

“It’s not capturing the same market it was when its share price was close to $18. They need to focus on their strength which is ironically their brand… and close stores which are underperforming,” he says.

“Private equity rarely get things wrong, they do their due diligence and stack the deck in their favour. There will be some clever heads who will probably turn the brand around very quickly.”