ASB MAGAZINE: The fate of SurfStitch is now clear with the struggling online retailer to be absorbed by New Zealand’s EziBuy after stakeholders overwhelmingly voted in favor of a rescue proposal by EziBuy’s owner, private equity firm Alceon Group. However, the EziBuy bid was nearly scuttled by a last-minute attempt by non-executive director Abigail Cheadle to postpone a decision. After a three-hour meeting in Sydney today, 63 per cent of creditors and class action shareholders voted in favor of a deed of company arrangement proposed by Alceon who are a majority stakeholder in the Cheap As Chips discount chain.
Ms. Cheadle lodged an enhanced proposal an hour before the meeting and sought to have the vote adjourned so EziBuy’s offer could be assessed by an independent expert, and so creditors whose proxy votes were declared invalid could have a say in the outcome.
However, creditors strongly rejected an adjournment after being warned that EziBuy would withdraw its offer if the meeting was postponed and that SurfStitch, which went into voluntary administration last August, could not survive for much longer as a stand-alone business.
SurfStitch co-founder Lex Pedersen, who started the business on Sydney’s northern beaches with co-founder Justin Cameron 10 years ago, was disappointed by the outcome.
“I think it’s a great deal for EziBuy – I understand why it’s of great appeal to them,” said Mr. Pedersen, who was a major creditor and shareholder and who supported Ms. Cheadle’s proposal, which would have seen SurfStitch shareholders emerge with 60 per cent of a relisted company.
“I still think Abi genuinely had the stakeholders’ best interests at heart and I definitely don’t regret supporting her.”
However, SurfStitch chairman Sam Weiss welcomed the outcome.
“I’m very relieved and optimistic for the future of employees, shareholders and customers of SurfStitch – it would have been very difficult [for the company to survive] given the trauma it’s been through over the last few years,” Mr. Weiss told The Australian Financial Review.
Most media were banned from the meeting but the Financial Review gained entry as a proxy of Ms. Cheadle. Mr. Weiss had earlier warned creditors about the consequences of adjourning the meeting or voting in favor of Ms. Cheadle’s proposal, which was backed to the tune of $5 million by private equity firm Greenwich Capital.
“If this meeting is adjourned we’ll be then dealing with a single DOCA or a liquidation as the Alceon DOCA will be withdrawn,” Mr. Weiss said.
“The Alceon DOCA is one that provides a future for the employees who have worked for the company for the last decade [and] I have great confidence under the ownership of Alceon they’ll be able to deliver the kind of outcome for themselves and the company that was envisioned some 10 years ago.
“I have no confidence that as an independent company listed on the ASX SurfStitch will be able to survive.”
Alceon executive director David Wilshire said Alceon, which owns 40 per cent of women’s wear retailer Noni B and bought EziBuy from Woolworths last August for $10 million, had a demonstrated track record of turning around retail businesses.
“We are pretty confident in our ability to turn around and restore value to SurfStitch shareholders,” Mr. Wilshire said. “We think this needs to be resolved now [and] we don’t think a further extension of the timeline is in the best interests of creditors.”
Under the EziBuy DOCA, employee and ordinary creditors will be paid in full in six to eight weeks, class action shareholders will receive a cash dividend between $3.4 million and $4.3 million from SurfStitch’s funds and will be issued with a convertible note that will convert to shares in EziBuy in three years’ time. Current SurfStitch shareholders will also receive a convertible note that converts into shares in EziBuy upon a liquidity event such as an IPO or trade sale.
According to AFR, Ms. Cheadle and other SurfStitch shareholders had questioned the value of the convertible note, given that the administrators valued EziBuy at between $188 million and $293 million, based on sustainable earnings of about $22 million. When Alceon bought EziBuy from Woolworths last year for $10 million it was earning $2.1 million.
Ms. Cheadle is now reported to be considering her options and hasn’t ruled out challenging the decision after the votes of many of her supporters were declared invalid or wound back due to lack of proof of debt.