Investors have cheered a refinancing deal that will keep troubled retailer Billabong solvent, but the company faces a long road back to profitability.
Billabong has reached a $US294 million ($A325 million) deal with Altamont Capital Partners which will allow it to repay its existing debts.
Shares in the company soared more than 30 per cent on news of the deal, albeit off a very low base.
The deal is expected to see US-based Altamont take control of the iconic Australian retailer with a stake of up to a 40 per cent of the company.
Altamont will also pay $A70 million to purchase Billabong’s DaKine brand.
As a condition of the deal, Billabong chief Launa Inman will step down after just 14 months with the company.
She will be replaced by Scott Olivet, the former boss of sunglasses brand Oakley.
Invast chief market analyst Peter Esho said the deal would help ensure Billabong remained solvent.
“Really the whole company structure, including debt, was a bit of a grey area and I think that has now been clarified slightly,” he said.
“I think the market is relieved that there is some funding certainty now and the possibility of the business going into administration is reduced, although not removed.”
Mr Esho said Billabong now had a chance to address its deeper structural issues and find a way to boost revenues.
The company has been hit by weak sales in recent years, especially in the US and Europe, and has found itself struggling with an oversized debt burden.
But Mr Esho warned Billabong still had some difficult years ahead of it.
“I still think its going to be another three years before Billabong can generate an adequate level of profit and an adequate level of cash to meet its commitments,” he said.
“But with the solvency issue now somewhat addressed I think they are in comfortable position to work towards that restructure.”
But he said the bump in the share price should not be seen as a reaction to Ms Inman’s departure from the company.
“I don’t think it’s so much to do with management, it’s more to do with capital structure,” he said.
CMC Markets chief market strategist Michael McCarthy said Ms Inman, who took the helm of Billabong when it was already in dire straights, was only ever going to be a caretaker CEO.
“She took on a difficult job at a difficult time. She’s been credible.”
Billabong has suffered a spectacular fall from grace in the past six years, with its share price sliding from around $14 in 2007 to a low of 12.5 cents last month.
The company has been the subject of six takeover attempts in the past 18 months.
Most notably, Billabong’s board rejected an offer from TPG Partners in early 2012, which would have seen shareholders receive $3.30 a share – more than 10 times their current level, on the grounds it undervalued the company.
Billabong shares finished Wednesday at 33.5 cents, up from 25 cents prior to the announcement of the deal with Altamont.
