SurfStitch creditors approve EziBuy proposal

Heather McIlvaine

4th Apr 2018

SurfStitch creditors have approved a proposal from EziBuy to take over the embattled surfwear company and either relist or sell it in the next three years, bringing the online retailer’s drawn-out administration to a close on Wednesday.

A majority of creditors voted in favour of the deed of company arrangement (DOCA) proposed by EziBuy’s parent company, Alceon Group, over a competing offer from SurfStitch non-executive director Abigail Cheadle, which had the support of SurfStitch co-founder Lex Pedersen and general manager Justin Hillberg, as well as several “major shareholders”, according to Cheadle, but not the administrators or other board members.

The administrators in March recommended creditors approve the EziBuy DOCA, saying it offered a better return to all stakeholders.

Cheadle last week sent a revised proposal to shareholders, matching many of the terms of the EziBuy offer and addressing some of the administrators’ concerns about the process of issuing shares. However, the administrators on Tuesday reiterated their support for the EziBuy deal.

Cheadle lodged a third proposal an hour before the meeting on Wednesday and moved to postpone the vote, so that the administrators and creditors could review her revised offer. She also wanted an independent expert to assess the EziBuy offer.

But creditors proved reluctant to adjourn the meeting after learning that EziBuy would rescind its offer if the vote was postponed. They were also keen to take the company out of voluntary administration, which has kept SurfStitch on cash terms with suppliers since August.

Because Cheadle needed to withdraw her second proposal in order to lodge the third version, creditors could either vote for Cheadle’s third DOCA – sight virtually unseen – or the EziBuy DOCA. 183 of them, representing around 63 per cent of the debt, chose the latter.

The 30 creditors who voted for the Cheadle DOCA represented around 37 per cent of the debt, indicating they were slightly larger stakeholders on average than those who voted for the EziBuy deal.

Cheadle expressed disappointment after the meeting and maintained that her proposal would have delivered a better outcome for everyone involved.

“I am extremely disappointed the proposal for SurfStitch was not successful. Since August last year, the proposal has been basically the same. During that time I have worked on the offer on a full-time basis, as well as personally funding it, because I believed strongly in the company’s future,” she said.

“I hope SurfStitch does well under its new ownership.”

Under the EziBuy DOCA, ordinary creditors and employees will be paid in full within six to eight weeks and class action creditors will receive an initial cash dividend between $3.4 million to $4.3 million. Class action creditors and current shareholders will also be issued convertible notes, converting to shares in the newly merged company, which has an obligation to seek an IPO or other liquidity event within the next three years.

Cheadle has questioned the valuation of the convertible note, since it implies a valuation well over ten times what Alceon paid for EziBuy ($10 million) last year.

Pedersen said the outcome reflected the emotions of the participants, rather than what was in the best interest of stakeholders.

“Unfortunately I think the process and outcome was a little more emotional than financial. Personalities, long-standing conflicts and conveniences may have tangled the outcome that should have exclusively been what’s best for the true stakeholders, that is the shareholders and staff,” he told Internet Retailing.

Pedersen said EziBuy will need to step up to revitalise the business, which he believes still has the potential to succeed.

“I remain of the view that this business should never have been placed into [voluntary administration]. Alas, it is where it is today despite the process, so what happens from here is now of utmost importance.

“EziBuy now need to step up with the support that Justin Hillberg and the team need and deserve as they push to restore it to pre-administration performance. The headwinds created by this protracted process are brisk, but the people [who] have built this business and the customers that support it are resilient.”