Billabong International Ltd., the surfwear company that’s accepted a refinancing offer from a group led by Altamont Capital Partners, said a competing proposal from two U.S. distressed-debt investors is unacceptable.

A debt-for-equity swap proposed by Oaktree Capital Group LLC and Centerbridge Capital Partners LLC lacks the certainty of a refinancing offer Altamont’s group put forward July 16, Billabong said in a stock exchange statement yesterday.

The proposal isn’t an offer that is “capable of acceptance,” Billabong said. “The proposal is subject to conditions, a number of which are incapable of satisfaction and others which would make any refinancing far less certain than under the Altamont Consortium transactions.”

Australia’s largest surfwear company has breached terms on its debt, fired employees, and shuttered stores as it struggled to control its debt amid a sales slump. Its shares have dropped 80 percent since Launa Inman took over as chief executive officer last May, and the company has been fielding takeover and recapitalization plans for all but five weeks of that period.

Billabong said the proposal came after Oaktree and Centerbridge failed to respond to its “numerous requests” to to submit a refinancing proposal.

Billabong closed 9 percent higher at 36.5 Australian cents in Sydney yesterday.


‘Superior’ Proposal


The debt funds’ offer would deliver about 61 percent of the company to the firms in return for canceling A$189 million ($173 million) of syndicated loans they’ve bought, according to Oaktree and Centerbridge.

It’s proposal is “superior” to that presented by the Altamont group, and can be executed any time up to Oct. 31, according to an e-mailed statement from Marsha Jacobs, an external spokeswoman for the funds at John Connolly & Partners.

“Billabong had a ‘For Sale’ sign on it for a while,” Peter Esho, chief market analyst at Invast Securities Co., said by phone before the offer was made yesterday. “If anybody was really serious about taking it over they’d have made a formal offer by now.”

While the funds had already approached the Gold Coast, Australia-based company before it made its deal with Altamont, there wasn’t enough detail for the board to make a decision, Billabong chairman Ian Pollard told a media event in Sydney yesterday. “We had no piece of paper that had any numbers on it, let alone a proposal,” he said.


Altamont Deal


Under the agreement Billabong made July 16 with entities associated with Altamont and Blackstone Group LP, Billabong will pay off the A$289 million in syndicated loans bought by Oaktree and Centerbridge by selling its DaKine brand to the consortium for A$70 million and taking a $294 million bridging loan.

The Altamont group could end up with 36 percent to 40 percent of the company, and appoint Altamont’s two co-founders to Billabong’s board, which currently has seven members.

The distressed-debt funds’ proposal would instead see A$189 million of the loans canceled in exchange for a 61 percent stake in Billabong, with the balance of A$100 million repaid using a six-year loan with an interest rate of 8 percent. The Australian company would retain its DaKine brand and the funds would seek a majority of board seats.

The offer “is a superior proposition that will optimize the prospect of Billabong effecting its turnaround plan,” according to the e-mailed statement from the funds.


Market Value


The debt funds’ offer was delivered at 2:15 p.m. Sydney time yesterday, according to the e-mail. Pollard hadn’t seen it when he addressed the media at Billabong’s store in Sydney’s city center Pitt Street mall at 3:30 p.m., he said.

Billabong’s market value peaked at A$3.84 billion in June 2007 before falling to as little as A$62 million June 24 amid uncertainty about its future, after it ended takeover talks with Sycamore Partners LP and said it was discussing refinancing deals with Sycamore and Altamont.

A former surfboard-shaper and keen surfer and the company’s largest shareholder, founder Gordon Merchant told Billabong’s board in February 2012 that he wouldn’t support an offer as high as A$4 a share if it were made by TPG Capital, the private equity group run by David Bonderman.

Scott Olivet, who Altamont has proposed as the new chief executive officer to succeed Inman, would also have taken that post under the Oaktree and Centerbridge proposal, according to the statement.

Billabong needs to put the uncertainty about its balance sheet behind it and concentrate on rebuilding its brands, Olivet told the media event yesterday.

“The attitude is, ‘Let’s move forward. Let’s go on offense’,” he said. “The last thing you want to do is answer questions about the financial condition of the company.”

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