Billabong rises from the ashes

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In mid-June, Billabong International (BBG.AX) shares hit an all-time low of just 12 cents per share. For those investors lucky enough to have picked the bottom and dived in, they have seen a 282% return to date, with shares currently changing hands at around 53 cents.

Now shareholders will be wondering how much higher the share price can go, or whether it will all come crashing down in a heap.

To recap, Billabong signed a deal with private equity firm Altamont Capital Partners on 16 July 2013 to refinance all its debt, along with the sale of its Dakine business to Altamont for $70 million. It’s not yet known whether Billabong is still looking to sell its Canadian retail chain West 49.

Altamont has loaned $325 million to Billabong as a bridging loan, with another $400 million worth of loans and convertible notes. CEO Launa Inman has also left, and has been replaced by Scott Olivet, former CEO and chairman of sunglass and sportswear giant, Oakley.

In return for the finance, Altamont gets paid interest, plus receives around 85 million options over shares which could see Altamont’s future equity ownership of Billabong between ~36% and ~40%. Existing shareholders will be heavily diluted, but at least they still have something that may be of value, and haven’t been completely wiped out, which would’ve been the case had the company fallen into administration.

Now that the company has sorted out most of its debt issues, it can get back to running the company and attempt to grow the business out of its structural and cyclical issues, much like Fairfax Media (FXJ.AX), David Jones Limited (DJS.AX) and Myer Holdings (MYR.AX).

Foolish takeaway

Billabong shareholders will be hoping for signs of a turnaround in the company’s prospects, although Miss Inman did report that the US business was showing signs of recovery before she left.  With several strong brands and new management in place, Billabong may yet see its share price over the $1.00 mark, but it’s unlikely to see its all-time high of over $18 anytime soon.

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Motley Fool writer/analyst Mike King owns shares in Fairfax Media.

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