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SurfStitch creditors approve EziBuy proposal

surfstitchSurfStitch 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.

Nearly two-thirds 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.

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 Inside Retail.

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 and said creditors would need to issue a new appointment of proxy to vote for the second Cheadle DOCA.

Cheadle lodged another enhanced proposal an hour before the meeting on Wednesday and moved to postpone the vote to allow creditors whose votes were deemed invalid to participate in the decision and enable an independent expert to assess the EziBuy offer.

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. But creditors proved reluctant to adjourn the meeting after learning that EziBuy would rescind its offer if the vote was postponed.

Voters were also keen to end the company’s voluntary administration, which has hampered SurfStitch since it has been on cash terms with suppliers since August.

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.”

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.”

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