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The Markets Knock the Wind Out of the Sails – DHT’s Acquisition of Saga a Clear Victim
On August 5th, DHT Holdings Inc. announced the withdrawal of its offer to acquire Saga Tankers ASA. With the consideration based upon an exchange of 0.25 shares of DHT for each share of Saga, the latter’s interest certainly waned as shipping shares declined at an even faster rate than the market in general. In fact, despite a number of extensions of the offering period, DHT had only received acceptances from approximately 84% of the shareholders below the 95% acceptance threshold.
The deal was certainly less attractive from DHT’s perspective as well. As Cantor Fitzgerald’s Natasha Boyden writes as a proxy: “As such, while this delays the company’s expansion plans, we suggest the deterioration in the tanker market since the deal was announced, combined with Saga Tankers’ high spot exposure, made us more lukewarm on the acquisition.”
Into these Volatile Markets Goes Star Bulk
In its first follow-on offering since it began operations in December 2007, Star Bulk Carriers Corp. announced on Monday an underwritten overnight offering of 16.5 million shares based upon its previously filed $250 million shelf registration. The next day the offering was upsized to 16.7 million shares and priced at $1.80 per share, a discount of 10.4% from Monday’s closing price. While the file to offer discount is somewhat higher than the average year to date of 7.2% indicated by Jefferies, recall this is shipping and the markets remain volatile. Net proceeds were approximately $28 million. In addition, the company is allocating the usual 15% of the offering or 2.51 million shares to cover over-allotments.
Partial Spin-Off to Follow-on – Diana Container Raises Equity
Back in December, Diana Shipping Inc. spun off 80% of its 55% interest in Diana Containerships Inc. by distributing to its shareholders 2,667,066 shares. The shares began to trade on NASDAQ in January of this year.
Subsequently, on May 9th, Diana Containerships filed an F-1 registration statement for a follow-on offering of common shares. The shares closed that day at $12.64 per share. On May 31st, the company filed a press release announcing a follow-on offering of 14 million shares and a concurrent $20 million private placement of common shares to Diana Shipping. The offering, which was upsized to 14.25 million shares due to investor interest, was priced on June 10th at $7.50/share, a 27% discount from the closing price the day of the public announcement. While substantial, it needs to be put in context. On May 2nd the Dow Jones Industrial Index hit a recent high of 12,807.36, which began a steady six week market decline, its longest slump since 2002. This was certainly not a propitious moment for an equity offering. In fact from the date of filing to the date of pricing the market as measured by the DJI fell 5.8%. If in fact the window for equity offerings was open it must have been barely a crack with investors clamoring for a substantial discount given the falling market and only being receptive, in this instance, because of the good name attached to the deal.
Success But at a Price – Box Ships’ IPO
Following quickly on the heels of the Golar LNG Partners LP offering, Box Ships Inc., a wholly owned subsidiary of Paragon Shipping Inc. became the second IPO of the year. Approximately three weeks ago, the company filed a registration statement to sell 10 million shares of the common stock of the company, leaving Paragon with a 22.7% stake. The sale would include a green shoe of a further 1.5 million shares. Pricing was expected to be between $15 and $17 per share and assuming midpoint pricing, gross proceeds would be $160 million. The net proceeds of the offering would be used to partially fund the acquisition of an initial fleet of six containerships, including three being acquired from Paragon, with an aggregate capacity of 28,177 TEU.
Discretion Is the Better Part of Valor
When it comes to dealing with shareholder activism, management has to quantify the costs as well as the time and energy consumed in its response. In all these respects, it is unlikely that management can win. It is spending money on lawyers and advisors and remains distracted from the day-to-day running of the company. And so at the end of the day, it generally succumbs to the minority shareholder’s gentle coercion, in polite terms, but what is, in essence, blackmail, in order to do what is best for the company or at least move on. A small company, in particular is doomed to this fate.
This is the position DHT Maritime found itself back in March, when MMI, owners of 9.7% of DHT’s outstanding shares, let its feelings about the quality of management and its decisions be known. All would be well, in their mind, if their expert, Bob Cowen, with his 25 years of maritime experience, were to be added to the board and thus a proxy contest ensued. The issue was resolved this week with DHT relenting by agreeing to expand the board from four to five directors and appointing Mr. Cowen to that new seat, which term expires in 2011. In addition, MMI has the right to nominate an additional director at DHT’s 2011 annual meeting for a term expiring in 2014 and DHT has agreed to support that nomination. In exchange, MMI has agreed to a standstill and will not solicit proxies for or participate in a contested election relating to DHT directors or submit any proposals at shareholder meetings through the completion of the 2011 annual meeting. Importantly, should MMI’s shareholding fall under 5% of the issued and outstanding shares as of the date of the agreement, the board seat will be terminated. And finally coming under the guise of adding insult to injury, DHT has indemnified MMI for its fees and expenses incurred with respect to the proxy contest up to $150,000.
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Another Dropdown Coming?
Last Thursday as we reported Navios Maritime Partners announced the follow-on offering of a further 4.5 million common units with a green shoe of 675 thousand units. On the following day the transaction was priced at $17.84 per unit a 5.26% discount from Thursday’s closing price of $18.83. Proceeds from the offering will be used to fund its fleet expansion and for general partnership purposes. Greater detail is shown in our Guts of the Deal below.
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With 2 Months to Spare
Today, Navios Maritime Acquisition Corporation, the SPAC formed by Navios Maritime Holdings (“Navios”) back in June 2008, announced that it had agreed to acquire a 13 vessel fleet, consisting of 11 product tankers (4 LR1s and 7 MR2s) and 2 chemical tankers for an aggregate purchase price of $457.7 million. The company also has options to purchase two additional LR1s for $40.5 million each. The purchase price will be paid from cash ($123.4 million) and $343 million of bank financing consisting of a three term loans aggregating $277 million and a $57 million revolving credit facility. The high leverage also leaves excess cash remaining for growth from the original $220 million raised. The company’s rationale for the purchase is its belief that the assets are being acquired near their inflation adjusted historic low prices and the anticipated increased demand for products as the global recession eases.
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Ravenous Equity Appetite for Follow-ons Continues
Safe Bulkers Inc. joined the long line of recent issuers announcing last week that it would utilize its existing shelf registration and offer 9 million shares of it common stock in a follow-on offering. The offering will provide a green shoe of a further 1.35 million shares to cover overallotments. And, in order to minimize dilution, Vorini Holdings, Inc., the controlling shareholder (82%) of the company, has agreed to purchase 1 million shares at the offering price. Net proceeds will be used for vessel acquisitions, capex and for other general corporate purposes, including debt repayment.
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Here Come the IPOs
This week two IPOs, one dry and one wet, hit the road with well-known sponsors. First was the Genco inspired BDI play, Baltic Trading Limited, which was followed by Mr. Marinakis’, of Capital Products Partners fame, large tanker vehicle, Crude Carriers Corp. These followed quickly on the heels of the recent Scorpio offering.
BDI Proxy
This was one of the first opportunities we had to watch a road show presentation on the great equalizer, “RetailRoadshow” (http://www.retailroadshow.com/index.asp), a website designed to put retail investors on a level playing field with the institutions. The presentation of Baltic Trading Limited was expertly handled, as one would expect, by Peter G. and John Wobensmith, who will respectively fill the positions of Chairman and President of the new company.
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Another Slick Deal
On Wednesday, DryShips announced the latest iteration of its fleet renewal program and it was done with the usual Mr. Economou élan. Two middle age (circa 1995) Panamax bulkers, the Iguana and Delray were sold generating proceeds of $43.5 million and a total book gain of $9.2 million. Although the related debt was repaid, the banks have agreed to keep it available for the replacement vessels.
To replace these vessels, the company has ordered two newbuilding 76,000 DWT Panamax dry bulk vessels at a Chinese shipyard for a price of $32.25 million each, versus the Clarkson estimated price of $33.8 million, reflecting the discount offered by Chinese yards. Delivery is expected to take place in 4Q 2011 and 1Q 2012. Given Mr. Economou’s recent propensity to fix long-term, the impact on EBITDA in the interim is minimal, according to Justin Yagerman of Deutsche Bank and Natasha Boyden of Cantor Fitzgerald. In fact, Ms Boyden noted that one of the vessels was on a below market time charter of $13,456/ day.
Cash in hand, debt funding available and the ships on the way. Next!
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