us hedge funds score partial victory

3 hours ago
IndustriesRetail
By a staff reporter

Two snubbed US hedge funds have lost an appeal to the Takeovers Panel over a refinancing deal struck between private equity firm Altamont Capital and struggling retailer Billabong International Ltd, but its protest has forced the parties to rewrite their deal.

The parties agreed to lower their termination fee, which the Takeovers Panel said had "acted as a lock-up device, with the effect of deterring rival proposals".

The panel also said that the high interest rates attached to a US$40 million convertible note as part of the proposed long term financing the deal was coercive, amounting to a “naked no vote” break fee.

Altamont has struck out the convertible note under the less draconian deal.

US funds Centerbridge Partners and Oaktree Capital had argued that the Altamont deal was anti-competitive and coercive.

However, the Takeovers Panel said today that it declined to make a ruling against the deal after the parties agreed to introduce revised terms.

The deal, finalised last month, saw Altamont take a stake of up to 40 per cent of Billabong in exchange for $325 million in debt refinancing. Billabong's board has sold its bag and outerwear business, Dakine, to Altamont for $70 million.

Another provision ditched on advice from the Takeovers Panel, was payment of a “make-whole” premium, which the panel said had the capacity to deter rival proposals.

The long term financing had required the loan to be repaid in the event of a change of a control of Billabong, plus payment of a “make-whole” premium should the loan be repaid in the first two years. The make-whole premium was 10 per cent of the principal plus interest that would have been payable during that two years.

Instead, a change of control of Billabong would require the retailer to prepay the term loan at a one per cent premium.

Under the revisions made, the termination fee has been reduced from 20 per cent of the $325 million bridging facility, to $6 million.

The original deal provided that Billabong pay the 20 per cent premium if there was a change of control in the group, it pursued an alternative financing deal, or did not use "commercially reasonable efforts" to pursue the long-term financing, when exclusivity lapsed on 15 January.

Finalising revisions to the deal was expected to take up to three weeks.

http://www.businessspectator.com.au/news/2013/8/21/retail/us-hedge-funds-score-partial-victory-billabong-appeal