A New York hedge fund that began buying Billabong shares in June has inserted itself into the Billabong imbroglio by demanding a special shareholders meeting be called and that most of the board be dismissed.
Coastal Capital International, which currently is a 5% shareholder of the company, wants shareholders to vote on the following items at a special meeting:
* That Billabong amends its constitution to require shareholder approval for future debt or equity financing arrangements
* That Coastal Capital representatives be appointed to the board
* The removal of all members of the board of directors except large shareholders Gordon Merchant and Colette Paull.
Billabong is currently in the midst of closing on a board-approved refinancing agreement with Altamont Capital Partners. While that agreement would install the well-regarded Scott Olivet as CEO and secure long-term financing for Billabong, some shareholders are upset about the dilution to current shareholders.
While Billabong is working on closing the deal with Altamont, it is also considering an unsolicited alternate refinancing proposal from Centerbridge and Oaktree.
Under the Corporations Act in Australia, Billabong will have to hold the extraordinary meeting requested by Coastal Capital within two months.
Theoretically, Billabong will have closed on one of the two refinancing transactions on the table by then. The Altamont refinancing package is expected to close in a few weeks.
Coastal Capital International has very little company information listed on its website, and I am told it has never been in contact with Billabong before this recent move. (See Page 4 for bios of the principals of Coastal Capital.)
Some of the changes Coastal Capital is requesting would require a lot of support from current shareholders. Amending the company’s constitution requires that 75% of shareholders agree, and removing directors requires that 50% of shareholders approve.
In a statement released in Australia, Coastal Capital International said in part, “Given the proposed magnitude of dilution of economic value by the Altamont transaction, it is imperative that any decision to proceed any further with the transaction or any other strategic transaction be approved by shareholders. Specifically, any transaction component involving a third party receiving options, new shares, or debt convertible into economic interests specifically should require shareholder approval as a pre-requisite.”
The Coastal demands are the latest wrinkle in the Billabong spectacle, which has dragged on for about 550 days since the first acquisition proposal from TPG.
Since then, Billabong has tried to restructure internally and compete in a challenging marketplace amidst takeover uncertainty and the departures of some key staff members.
“We don’t see any reason to delay the refinancing process at all,” Billabong spokesman Chris Fogarty told me in an interview this morning about the new Coastal Capital development. “It’s really important for our team globally to get on with the task of rebuilding Billabong and that continues to be our primary focus.”
Altamont, which is committed to the Billabong deal but keeps having to respond to new developments in the ongoing process, said in a statement, “The Altamont Consortium transaction means Billabong, after many months of uncertainty, finally has a clear path toward the future and to realizing the tremendous potential we see in its portfolio of exceptional brands.
“Most importantly, our interest in creating fundamental value is clearly aligned with Billabong's shareholders. We are here as committed long-term partners for the company and will continue to work with the board, Scott and the rest of the management team to reinvigorate Billabong’s businesses and brands, and to restore shareholder value.”
See Page 2 for full statements from Coastal Capital International, Billabong and Altamont Capital Partners
“In the opinion of Coastal Capital International, Ltd., the Company is unwisely proceeding with a rushed Altamont transaction on extremely unfavorable terms when there is an opportunity to improve the transaction significantly by being patient, delaying a decision and fully evaluating competing proposals, including those sent to the Company on an unsolicited basis.
“This would be consistent with the Company’s stated objective of working towards a financing package that is intended to provide it with a flexible capital structure to allow the Company’s business to stabilize, address its cost structure, and pursue a strategy to grow the business.
“Given the proposed magnitude of dilution of economic value by the Altamont transaction, it is imperative that any decision to proceed any further with the transaction or any other strategic transaction be approved by shareholders. Specifically, any transaction component involving a third party receiving options, new shares, or debt convertible into economic interests specifically should require shareholder approval as a pre-requisite.
“The directors have a duty to shareholders to maximize value for them and by eagerly pursuing a transaction with one party despite at least one available economically superior proposal appears to potentially conflict with this duty. These resolutions put the key decisions in the hands of shareholders via amendments to the Company’s constitution to ensure that important decisions cannot be made by the Board without the consultation of the shareholders.
“These resolutions, if passed, will give shareholders a say in ensuring that the optimal transaction occurs. Further, there is no additional risk from delay as both competing proposals already offer to the Board guaranteed bridge loans available till at least 31 December 2013.
“Coastal Capital International, Ltd., as one of the largest shareholders of the Company, is committed to preserving and creating long-term shareholder value at the Company to the maximum extent possible. To the extent that a strategic transaction advances with Altamont, Oaktree/Centerbridge, or any other third party, Coastal Capital International, Ltd. seeks to pursue the absolute best transaction obtainable.
“The current Directors have presided over one of the largest destructions in the share market value of a company in modern Australian corporate history. Under their collective watch, the market capitalization of the Company has fallen from over A$3 billion to less than A$65 million at its lows. Along the way, multiple proposed transactions at dramatically better terms than the Altamont deal have fallen by the wayside under this Board’s watch. Consequently, the Board has lost the confidence of some substantial shareholders and Coastal Capital International, Ltd. is of the opinion that decisions as important as the structure of the proposed Altamont and Oaktree transactions should be primarily the decision of shareholders and not the Board unilaterally.
“Coastal Capital International, Ltd. believes the best way to proceed in an objective manner is to simply remove those directors who have lost shareholder confidence. Consequently, Coastal Capital International, Ltd. believes that all directors’ directorships should be immediately placed up for a removal vote except for those directors who are also large shareholders and are therefore economically aligned to maximize value for all shareholders, namely Gordon Merchant and Colette Paull. Coastal Capital International, Ltd. believes that the immediate removal of these non-substantial shareholder directors may be one of the few ways to ensure that the optimal strategic transaction for the Company, if any, is pursued rather than a more expedient but suboptimal deal.
“The current Board seems to maintain the position of advancing with the current Altamont proposal as quickly as possible. In addition to all the reasons above, why this is not advisable to do so, it would seem to be objectively irresponsible and a potential blatant dereliction of duty to proceed full speed ahead with the some of your largest owners and the Australian Shareholders Association vociferously telling the Board that the current transaction is not necessarily in the best interests of shareholders.”
Billabong’s response to Coastal statement:
“Billabong today notes a statement sent to the media from US hedge fund Coastal Capital who recently became a shareholder of the Company. Our response as is follows:
· There are no reasons to prolong the re-financing process, nor are either Consortium who are engaged with the Board regarding long-term re-financing, requesting that it be prolonged.
· Delaying the process is more likely to be to the disadvantage of shareholders than to their advantage as it only further delays the point at which management can get focused on stabilizing and rebuilding the business.
· Coastal’s approach to this is based on the premise that the Board is "not fully evaluating competing proposals." That is a false premise. We have been methodically working through the Oaktree/Centerbridge proposal, which was received after the previous Altamont agreement was entered into.
“While it's important to reiterate in writing our position on these key points, the Company intends to deal with the matters detailed in Coastal's application at the appropriate time in the appropriate manner.”
See Page 3 for Altamont Capital’s statement about the Coastal Capital International proposal
PALO ALTO AND GOLD COAST, 2 SEPTEMBER 2013: The Altamont Consortium comprised of Altamont Capital Partners and GSO Capital Partners (the credit arm of the Blackstone Group, and together with Altamont, the “Altamont Consortium”) issue the following statement today:
We remain focused on expeditiously finalizing the implementation of our agreement with Billabong, which we see as being in the best interests of the company, its shareholders, its employees and all other stakeholders.
The Altamont Consortium agreement represents a comprehensive financing and growth solution that secures the future of Billabong by:
• Injecting a substantial amount of cash (A$325 million) to stabilize the balance sheet by repaying debt and providing capital for growth;
• Bringing in a world-class CEO and MD, Scott Olivet, with extensive sector experience and a demonstrated track record of success. Scott has spent the past eight months working in conjunction with the Altamont Consortium to build a strategic plan designed to fortify the company’s brands and drive profitable growth; and
• Leveraging the capabilities of the Blackstone Group’s world-class operations team to drive meaningful efficiencies in procurement, logistics, and distribution.
Billabong is an iconic Australian company that employs approximately 6,000 people and distributes its products through over 10,000 stores in Australia and worldwide. The Altamont Consortium transaction means Billabong, after many months of uncertainty, finally has a clear path toward the future and to realizing the tremendous potential we see in its portfolio of exceptional brands.
Most importantly, our interest in creating fundamental value is clearly aligned with Billabong's shareholders. We are here as committed long-term partners for the company and will continue to work with the board, Scott and the rest of the management team to reinvigorate Billabong’s businesses and brands, and to restore shareholder value.
About Altamont Capital Partners
Altamont Capital Partners is a private investment firm based in the San Francisco Bay Area. Altamont is focused on investing in businesses where it can partner with leading management teams to help the companies reach their full potential. The firm’s principals have significant experience building business success stories across a range of industries.
About GSO Capital Partners
GSO Capital Partners LP is the credit business of The Blackstone Group. With approximately $58 billion of assets under management as of March 31, 2013, GSO is one of the largest credit-oriented alternative asset managers in the world and a major participant in leveraged finance. GSO specializes in collateralized loan obligation vehicles (CLOs) and credit-oriented funds, which include leveraged loans, special situations, mezzanine, distressed, secondary market and rescue financing credit strategies. Our other alternative asset management businesses include the management of private equity funds, real estate funds, hedge fund solutions and closed-end funds.
See Page 4 for the bios of the two Coastal Capital managing partners
Mr. Todd Charles Alan Plutsky is a Managing Partner at Coastal Investment Management, L.P. Prior to Founding Coastal, he served as an Analyst at Ivory Capital in Los Angeles, a multi-billion dollar investment firm, where he was responsible for sourcing special situation opportunities and spearheaded various investments in the U.S., Europe, and Latin America. Previously, he worked in investment banking at J.P. Morgan in New York where he advised on the mergers and acquisitions and strategic transactions of several notable companies. He has been a Non-Executive Director of Redbank Energy Limited since August 12, 2011. He also serves as a Director of Coastal Capital International, Ltd., which is a substantial shareholder of Redbank Energy and an Active Investor in Australian infrastructure businesses. Mr. Plutsky graduated magna cum laude with a B.A. from Northwestern University in Economics and Political Science, with a Juris Doctor from the Harvard Law School, and with an M.B.A. from the Harvard Business School.
Mr. Vlad Artamonov serves as Managing Partner at Coastal Investment Management, L.P and Coastal Capital International Ltd. Mr. Artamonov was an Investment Analyst at Greenlight Capital in New York, a multi-billion dollar value-oriented investment firm. During his tenure, he spent a considerable amount of time analyzing financials, energy and power, chemicals, logistics, consumer products, and technology companies globally. Previously, he worked at Merrill Lynch, where he was an integral member of an investment banking team advising U.S. and international companies on acquisitions, divestitures, strategic minority investments, joint ventures, and leveraged buyouts. Mr. Artamonov has been a Non-Executive Director at Redbank Energy Limited since August 12, 2011. He has been a Board Member of Karolinska Development AB (publ) since 2012. He serves as a Director of Coastal Capital International, Ltd. He graduated magna cum laude with a B.S.E. from the Wharton School at the University of Pennsylvania and with an M.B.A. from the Harvard Business School.