A break-up fee agreed by Altamont Capital Partners, GSO Capital Partners and surf-wear retailer Billabong is being described as “unacceptable” by shareholder lobbying group the Australian Shareholders’ Association (ASA).
This week Altamont and GSO Capital Partners, the credit arm of global private equity giant The Blackstone Group, agreed an A$325 million ($294 million; €228.5 million) bridge loan facility with a break-up fee of A$65 million.
The ASA wants the Australian Takeovers Panel to force the two lenders to reduce the agreed break-up fee, which they believe to be too high. Break-up fees cover a buyer's due diligence costs for broken deals. ASA argues that rival bidders are not interested in making rival bids for Billabong, because if they successfully outbid Altamont and GSO, the A$65 million break-up fee would be too much of a drain on Billabong's resources.
In a statement ASA said that the break-up fee equates to 20 percent of the debt, adding break-up fees in Australia don't usually exceed 1 percent of the equity value of a transaction.
However the relatively large break-up fee could be a result of a prolonged bidding process for Billabong, which a high break-up fee could end, said Mark McNamara, partner in King & Wood Mallesons’ Sydney office.
“People have had the chance to look at this for a long time. It reached a point where the [Billabong] directors had a deal they were prepared to take and thought it was the best available,” said McNamara, who believes Australia's Takeovers Panel will look into the Billabong deal.
“There will be a lot of circumstantial considerations for [the Takeovers Panel], but it’s still a very large fee and outsized to where the market has been on these things.”