So will there be a new life for the deeply-troubled global youth retailer Billabong after its long expected bailout?
Can the company recreate itself in the image of its former alter ego – the original Billabong, retailer of cutting edge clothing and gear that young people here and around the world found it ‘cool’ to wear and abandoned when their parents and older siblings discovered the company?
Or will it prove to be a fruitless attempt to revive a company and its once premier group of brands that are now past their use by date as their core customer group has aged and are no longer interested, and new, younger consumers don’t consider the company ‘cool’ any more?
That’s the big question after the details of the $A352 million bailout was finally revealed yesterday.
Investors (mostly day traders) didn’t care about the longer term prospects, just that it was a cheap trade with a lot of other bigger investors wanting stock (read hedge funds). So the shares took off after they were delisted, jumping 46% from their recent low of 22c last Thursday.
Billabong opened the day at 31c, 6c higher than Tuesday’s close, and then jumped to 36.5c. The closed at 33.5c, up 34% or 8.5c for the day. The refinancing deal was announced after trade closed on Tuesday.
BBG YTD – Billabong’s rough ride
The Gold Coast-based firm, which was valued at $3.84 billion at its peak in May 2007, has seen its market value slump after a series of failed takeover talks.
It was a tale of over eager expansion, too much debt, a ‘cool’ company that had lost its cache with its core market, a slow board, poor management and the impact of the GFC and recession, firstly in the US, then in the UK and finally Europe, along with sluggish retailing in this country for much of the last three years.
All in all it was an old story, but a classic tale of a high flyer losing its way and then proving to be defenceless once market conditions beyond its control changed rapidly.
As reported yesterday, Billabong chief executive Launa Inman will step down as part of the agreement to be replaced by Scott Olivet, a former chairman and chief executive of US sportswear group Oakley.
Investors associated with Altamont and Blackstone Group (with GE Finance providing extra funds) have entered the agreement that will allow Billabong to repay in full its syndicated debt facilities.
As part of the deal, Billabong will sell its Dakine brand to Altamont for $70 million.
The changes follow a difficult three years for the retailer as sales and earnings slid and the board and management battled to staunch the bleeding.
Last year, the surfwear firm dumped its then chief executive Derek O’Neill – who had been with Billabong for more than two decades – for Ms Inman.
A couple of attempts to find a white knight or bigger financial partner for the group foundered until the current plan emerged earlier this year after months of talks.
Billabong explained in an announcement yesterday that the company’s present position will be stabilised via an immediate refinancing which will be by way of the bridge financing by the Altamont Consortium of the company’s existing syndicated debt facilities and the sale of the Dakine brand.
"The long term financing will be by way of an Altamont Consortium term loan and convertible note, and a revolving credit facility provided by GE Capital. This financing package is intended to provide Billabong with a flexible capital structure to allow it to stabilise the business, address its cost structure, and pursue a strategy to grow the business.
"As a condition precedent to this significant investment by the Altamont Consortium, the Board of Billabong today announces that it intends to appoint Mr. Scott Olivet as Chief Executive Officer and Managing Director of Billabong.
"In order to further adequately reflect Altamont’s significant investment in the Company, Altamont will be permitted to nominate two representatives to the Board of Billabong.
“The Board believes that the Altamont Consortium’s refinancing, and the changes being announced today, provide the Company with a stable platform and the necessary working capital to continue to address the challenges it faces," CEO Ian Pollard said in yesterday’s statement.
"We had highlighted the Company’s debt issues previously and it was imperative to deliver a refinancing that retained an opportunity for shareholders to participate in the future of the Company. The Altamont Consortium presented the best available, certain and executable opportunity in these challenging circumstances.
“The transaction reflects the Altamont Consortium’s confidence in the value of Billabong’s brands and our Company’s ability to achieve future profitable growth," said Mr Pollard.
