Oaktree-backed Australian surf brands to merge

Boardriders offered in December to buy all outstanding shares in Billabong for A$1.00 apiece, implying a valuation of around A$198 million ($150 million). The Australian Securities Exchange-listed company said in a filing that the proposed merger represents an enterprise valuation of A$380 million. Billabong’s net debt stood at A$148.6 million as of June 2017.

Oaktree holds an approximately 19% stake in the company and is one of two senior lenders alongside Centerbridge Partners. The latter has agreed to vote its entire 19.2% interest in favor of the acquisition by Boardriders. Gordon Merchant, Billabong’s founder, has said he will do the same with his 12.8% holding.

Oaktree and Centerbridge supported a refinancing in 2013, whereby they agreed to lend up to $360 million over six years and received new shares and options for a combined equity interest of up to 40.8%. They bought the majority of Billabong’s debt from a bank syndicate after the company booked a net loss of A$860 million for 2013 and cut the value of its namesake brand to zero.

Billabong’s cash flow position has strengthened since the restructuring, but the market conditions remain challenging. The company posted A$974.7 million in revenue for the year ended June 2017, down 8% year-on-year, while the net loss expanded from A$23.7 million to A$77.1 million.

Ian Pollard, chairman of Billabong, said it will become necessary “to materially reduce debt if [Billabong] is to continue with its current strategy which, given the company’s existing high debt levels, is expected to require asset sales or dilutive equity raising.” As such, the Boardriders offer, which represents a 28% premium to the November 30 closing price, is seen as being in the best interests of shareholders.

Boardriders has faced similar challenges to Billabong, having taken its US business – which accounted for one-third of revenue – into voluntary bankruptcy in 2015. The company’s European and Asia Pacific operations were not involved in this proceeding. Oaktree and Bank of America provided $175 million in debtor-in-possession financing and then Oaktree led a debt-for-equity swap.

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• Topics
• Australasia
• Consumer
• Buyouts
• Australia
• Oaktree Capital
• M&A