Billabong International Limited's under performing business
and increasing net debt are well documented. Over the past year and
a half, Billabong has received a number of refinancing proposals,
each of which appeared less favourable than the last. In July 2013,
Billabong announced that it had accepted the Altamontled
consortium's refinancing proposal, which had the following
Termination fee of approximately 54% of Billabong's equity
value, triggered by a change of control;
Make-whole premium of approximately $107 million, triggered by
a change of control; and
35% pa interest rate on convertible note, which decreased to
12% pa, if shareholders approve conversion to redeemable preference
In the absence of rectifying action, the Takeovers Panel would
have declared that the refinancing package proposed by Altamont (in
particular the penalty payments in the refinancing package and
their excessive coercive effect on Billabong shareholders)
infringed on takeovers law by locking out other potential proposals
therefore giving rise to unacceptable circumstances.
THE PANEL'S DECISION
The termination fee, make-whole premium and variable interest
rate were lock-up devices, the effect of which was to discourage
rival bids, and inhibit the acquisition of voting shares taking
place in an efficient, competitive and informed market. In
particular, the Panel found that:
Both the termination fee and the make-whole premium amounted to
a 'break fee', which should ordinarily not exceed 1% of the
equity or enterprise value of the target.
Trigger of the break fees by a change of control potentially
hinders another actual or potential control transaction.
Variable interest rate, triggered by the absence of shareholder
approval, amounted to a "naked no vote" break fee.
The magnitude of the break fee constituted a financial penalty
on Billabong, As Billabong was in financial distress and the
shareholders would feel pressured to approve the transaction, the
Billabong and Altamont revised the refinancing package by:
Reducing the termination fee to under 1% of Billabong's
enterprise value, and removing the change of control trigger.
Reducing the make-whole premium to 1% of the principal
Removing the "naked no vote break fee".
As a result of the restructure, the underlying cost of the
refinancing package increased. Interestingly, Oaktree and
Centrebridge, who challenged Altamont's refinancing proposal,
pitched a rival package which was accepted by Billabong in
There is no issue with "loan-to-own" transactions in
the Australian market, which are usually begrudgingly approved by
shareholders. However, refinancing terms that have the effect of
"pre-packaging" the outcome before shareholders have the
opportunity to vote, risks drawing the Panel's attention and
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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