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The Week in Review
The money, apparently, is in oil as two of the industry’s biggest gurus, John Fredriksen and George Economou, both make aggressive plays into the rig space. Mr. Fredriksen, of course, has long been making investments into various facets of the offshore industry and has either spawned or acquired a bevy of offshore companies to that end. It was hardly earth shattering this week when Seadrill announced that it had acquired 200,000 shares and entered into forwards to acquire 16,300,000 shares in US-listed Pride International, an offshore company with a market capitalization of $7.2 billion. The shares amount to a 9.9% stake, worth around $708 million. The move prompted Pride International to take action to lower the threshold level of ownership to trigger its stockholder rights plan from 15% to 10%. Seadrill has also asked Pride for a meeting to discuss “potential strategic benefits for both parties of a transaction between the two companies.” A merger could be on the cards – or it could not be. Mr. Fredriksen has shown himself as skillful an investor as an acquirer, using each strategy as it suits him.
Written by: carisk | Categories: Freshly Minted, The Week in Review | April 24th, 2008 | Add a Comment
DryShips Launches Bid for Ocean Rig, Plans Ultra Deepwater Spin-off
When DryShips first purchased a 40.4% stake in Ocean Rig from Cardiff Marine in December 2007 for $405 million, shareholders were perturbed and correspondingly punished the share price. Why had a dry bulk play entered the rig market, they wondered? And why did DryShips purchase interests from George Economou’s private company Cardiff Marine just weeks after Cardiff had purchased the interests itself – for a higher price? To Mr. Economou it was a shrewd business move and a good opportunity to diversify, but to shareholders it was perplexing and made the future more uncertain – and therefore more risky.
Written by: carisk | Categories: Freshly Minted, The Week in Review | April 24th, 2008 | Add a Comment
Sentiment Turns
In a welcome turn of events, the market was resoundingly upbeat this week. The pace of transactions picked up notably across sectors, and we can’t help but view this as a positive sign for the financing market going forward.
On the M&A front Excel and Quintana successfully closed their merger. Each issued and outstanding share of Quintana common stock was converted into the right to receive $13.00 in cash and 0.3979 Excel Class A common shares. The merger creates a combined company that operates a fleet of 47 vessels with a total carrying capacity of approximately 3.7 million DWT and an average age of approximately eight years. Stamatis Molaris stepped into the role of CEO of the combined company, while Hans Mende, Corbin Robertson III and Paul Cornell joined its board of directors. We were happy to hear that the deal was executed smoothly. Moreover, Nordea and the underwriting team were successful in syndicating the debt levels required to make the deal possible – without needing to bring market flex provisions into play.
Written by: carisk | Categories: Freshly Minted, The Week in Review | April 17th, 2008 | Add a Comment
Economou Proves Power of Active Investor Relations
George Economou has been running around various New York City financial media outlets this week talking about the shipping markets and his stock – with great success. Economou gave a bullish interview on CNBC this morning and plans to be on Bloomberg this afternoon and CBS MarketWatch early next week. As you can see from the stock graph, both in terms of volume and price appreciation, active investor relations can yield spectacular results – something that all public companies should remember.
DryShips Scores Another Buy Rating from Dahlman Rose
First Jefferies, then Cantor Fitzgerald, and now Dahlman Rose has become the third institution to issue analytical reports on DryShips recommending that investors buy the company’s stock. It is particularly interesting that all the analysts agree the shares should be bought considering that two thirds of respondents to our 2005 Marine Money Banker Survey, given the option to buy shares in DryShips with their own money, would buy none at all. The company’s share price has also fallen notably off its high of $23.90, but at $18.88 at press time, is still up from the issue price of $18.00.
This suggests that long-time shipping bankers are concerned about George Economou’s history and probably suspicious of the incredible market reception the deal was given. At the same time, analysts running numbers on what are currently high asset values and reasonably high charter rates are coming to the conclusion that the company, which has bought a slew of ships since its offering, will bring in a lot of cash. Investors expect George to wow Wall Street with 1Q05 numbers to quiet some of the criticism, and most likely in the long-term the truth, as always, will be somewhere in between.
Written by: carisk | Categories: Freshly Minted, The Week in Review | April 7th, 2005 | Add a Comment
Economou Deal Skewered By Investment Bank Weeden
Economou Deal Skewered By Investment Bank Weeden
In this past week’s welling@weeden newsletter, Kathryn Welling wrote a no-holds-barred critique of George Economou, his DryShips deal and, most importantly, the investors who participated. Really, the only thing the piece respected was Mr. Economou’s ruthless intelligence.
“He knows well, too, that institutional memory in the investment world, other than in a few “relics” like himself, these days has a lifespan rivaling that of a fruit fly. Still, he’d thought, the red herring was so outrageous, the deal’s timing so brazenly on the heels, practically, of its principal’s last disastrous (for the public) foray into the public markets, that sparks would just have to fly when this fellow dared show his face in New York.”
Ms. Welling has harsh words for “the sea of speculative sap flowing around anything even remotely connected to the energy sector,” and quotes an attendee at the DryShips lunch as describing “a room full of portfolio managers being led like lambs to slaughter.” The unnamed source also noted that no one even questioned what had happened with the massive Alpha Shipping Plc loan default that occurred only in 1998. And Ms. Welling doesn’t stop there. She then runs through red flags in the prospectus, ranging from the close family connections that are rife throughout DryShips and its several affiliates to the immediate and substantial dilution incurred by purchasers of DryShips shares and the $69 million dividend received by the company’s original shareholders. She also quoted one shipping analyst that was “stunned that Economou made so little” in the strong freight markets of the past two years. If the dry bulk market remains strong, Ms. Welling’s review makes for an entertaining history. If it collapses, it is a damning critique of Wall Street.
In this past week’s welling@weeden newsletter, Kathryn Welling wrote a no-holds-barred critique of George Economou, his DryShips deal and, most importantly, the investors who participated. Really, the only thing the piece respected was Mr. Economou’s ruthless intelligence.
“He knows well, too, that institutional memory in the investment world, other than in a few “relics” like himself, these days has a lifespan rivaling that of a fruit fly. Still, he’d thought, the red herring was so outrageous, the deal’s timing so brazenly on the heels, practically, of its principal’s last disastrous (for the public) foray into the public markets, that sparks would just have to fly when this fellow dared show his face in New York.”
Ms. Welling has harsh words for “the sea of speculative sap flowing around anything even remotely connected to the energy sector,” and quotes an attendee at the DryShips lunch as describing “a room full of portfolio managers being led like lambs to slaughter.” The unnamed source also noted that no one even questioned what had happened with the massive Alpha Shipping Plc loan default that occurred only in 1998. And Ms. Welling doesn’t stop there. She then runs through red flags in the prospectus, ranging from the close family connections that are rife throughout DryShips and its several affiliates to the immediate and substantial dilution incurred by purchasers of DryShips shares and the $69 million dividend received by the company’s original shareholders. She also quoted one shipping analyst that was “stunned that Economou made so little” in the strong freight markets of the past two years. If the dry bulk market remains strong, Ms. Welling’s review makes for an entertaining history. If it collapses, it is a damning critique of Wall Street.
Economou Puts IPO Funds to New Use in Accretive Purchases
Economou Puts IPO Funds to New Use in Accretive Purchases
George Economou has already begun to put the extra DryShips (NASDAQ: DRYS) proceeds to use in a flurry of transactions that one London broker said has actually pushed up the rates of secondhand bulk carriers by 10%. For example, market sources indicate that the newly listed company has purchased an additional charterfree capesize vessel this week for $85 million. Last week, the company acquired the 1995-built panamax bulker Linda Oldendorff for $40 million with a 14-month charter back to the sellers at $35,000 per day.
Based on these new deals, we thought it would be interesting to look at how the valuation of the vessels compares to the valuation of the company itself – to see if they are accretive or dilutive to shareholder value. The numbers are rough and dirty, but here goes:
We’ll look at the capesize first. DryShips bought the vessel charterfree for $85 million. Although capesize rates have been bouncing around a bit lately, Clarkson gives day rate guidance of $75,000 in the spot market which equates to $26 million in annual revenue. With management costs and dry docking accruals of about $5,400 per day, the total opex is $2 million per year. That means the vessel generates $24 million in EBITDA – or 3.5x the total purchase price. This multiple is actually low compared to the 4.1x EBITDA that DryShips was valued at in the IPO. For the purchase to have equaled the IPO valuation, DryShips would need to have paid $105 million for the ship. But now let’s imagine that charter rates trend down. This same deal would be dilutive to cashflow, at 5.15x, if day rates dropped to $50,000, which is substantially more than the $43,000 per day average for 3-year time charters, according to Clarkson. Now here’s where it gets really scary. If rates go to $18,000 per day, which is $4,000 per day more than the average one-year time charter rate in 2002 and $12,000 less than the average in 2003, the deal would have been struck at an incredible 17.6x EBITDA $18,000. Looking at the current Clarkson one-year rate for capesize bulkers of $65,000 per day, it would appear that DryShips acquired the vessel at precisely 4x 2005 EBITDA.
Now let’s turn to the panamax. According to market reports, Economou bought the ship for $40 million with a 14-month charter back at $35,000. Using a 365 day year and $5,000 per day opex, DryShips will generate EBITDA of $11 million on the vessel – and therefore paid approximately 3.6x 2005 EBITDA which is accretive to the company’s valuation.
When Public Companies Drive the Private Market
What we think is particularly interesting about this transaction is the idea that public companies can simply pay more for ships and still have the deals be accretive than other shipowners. In the table below, we present current price to 2005 projected cash flow multiples of some of the public tanker companies.
George Economou has already begun to put the extra DryShips (NASDAQ: DRYS) proceeds to use in a flurry of transactions that one London broker said has actually pushed up the rates of secondhand bulk carriers by 10%. For example, market sources indicate that the newly listed company has purchased an additional charterfree capesize vessel this week for $85 million. Last week, the company acquired the 1995-built panamax bulker Linda Oldendorff for $40 million with a 14-month charter back to the sellers at $35,000 per day.
Based on these new deals, we thought it would be interesting to look at how the valuation of the vessels compares to the valuation of the company itself – to see if they are accretive or dilutive to shareholder value. The numbers are rough and dirty, but here goes:
We’ll look at the capesize first. DryShips bought the vessel charterfree for $85 million. Although capesize rates have been bouncing around a bit lately, Clarkson gives day rate guidance of $75,000 in the spot market which equates to $26 million in annual revenue. With management costs and dry docking accruals of about $5,400 per day, the total opex is $2 million per year. That means the vessel generates $24 million in EBITDA – or 3.5x the total purchase price. This multiple is actually low compared to the 4.1x EBITDA that DryShips was valued at in the IPO. For the purchase to have equaled the IPO valuation, DryShips would need to have paid $105 million for the ship. But now let’s imagine that charter rates trend down. This same deal would be dilutive to cashflow, at 5.15x, if day rates dropped to $50,000, which is substantially more than the $43,000 per day average for 3-year time charters, according to Clarkson. Now here’s where it gets really scary. If rates go to $18,000 per day, which is $4,000 per day more than the average one-year time charter rate in 2002 and $12,000 less than the average in 2003, the deal would have been struck at an incredible 17.6x EBITDA $18,000. Looking at the current Clarkson one-year rate for capesize bulkers of $65,000 per day, it would appear that DryShips acquired the vessel at precisely 4x 2005 EBITDA.
Now let’s turn to the panamax. According to market reports, Economou bought the ship for $40 million with a 14-month charter back at $35,000. Using a 365 day year and $5,000 per day opex, DryShips will generate EBITDA of $11 million on the vessel – and therefore paid approximately 3.6x 2005 EBITDA which is accretive to the company’s valuation.
When Public Companies Drive the Private Market
What we think is particularly interesting about this transaction is the idea that public companies can simply pay more for ships and still have the deals be accretive than other shipowners. In the table below, we present current price to 2005 projected cash flow multiples of some of the public tanker companies.
Hudner Buys Modern Ships at 4.7x EBITDA
Hudner Buys Modern Ships at 4.7x EBITDA
It is our understanding that B+H house bank Nordea and DVB are providing the debt on the deal, estimated to be about $75 million. According to a company press release, the new ships will more than double the EBITDA from $17.6 million in 2004 to $40 million in 2005. If we assume that the new ships will generate the $23 million of EBITDA difference, then B+H did the deal at 4.7x EBITDA, about where George Economou priced his DryShips deal last week. But not all cash flows are created equally. The major difference, of course, is that the DryShips vessels are trading on the spot market and could generate cashflows substantially higher or substantially lower than what is being forecast, while the B+H ships are on firm charters with possibly investment grade charterers. Moreover, since B+H is buying ships at less than 5x EBITDA on 5-year charterers, they will be close to full payout – a figure that is really remarkable in today’s market for ships this young.
Nordea, DVB Provide Debt – Who Will Provide Equity?
So where will the missing $35 million to fund the acquisition come from? There are a few options – re-leveraging the existing fleet, retained earnings, Hudner (who controls the majority of the stock) or outside investors. In the former case, the B+H ships have very little leverage, about $15 million, and the loan balances are declining rapidly. That said, the B+H fleet will be forced to come off the water in 2007, so they do not have much time to earn their way out of debt. Another option is for the company to attempt to access the public equity market through a PIPE or a secondary offering – and we have no doubt that a few of our investment banking friends have made the journey up to the bucolic and littoral offices of B+H. According to our calculation, B+H has about $15 per share in cash and steel, though the product tankers are coming off the water in 2007 due to regulations.
It is our understanding that B+H house bank Nordea and DVB are providing the debt on the deal, estimated to be about $75 million. According to a company press release, the new ships will more than double the EBITDA from $17.6 million in 2004 to $40 million in 2005. If we assume that the new ships will generate the $23 million of EBITDA difference, then B+H did the deal at 4.7x EBITDA, about where George Economou priced his DryShips deal last week. But not all cash flows are created equally. The major difference, of course, is that the DryShips vessels are trading on the spot market and could generate cashflows substantially higher or substantially lower than what is being forecast, while the B+H ships are on firm charters with possibly investment grade charterers. Moreover, since B+H is buying ships at less than 5x EBITDA on 5-year charterers, they will be close to full payout – a figure that is really remarkable in today’s market for ships this young.
Nordea, DVB Provide Debt – Who Will Provide Equity?
So where will the missing $35 million to fund the acquisition come from? There are a few options – re-leveraging the existing fleet, retained earnings, Hudner (who controls the majority of the stock) or outside investors. In the former case, the B+H ships have very little leverage, about $15 million, and the loan balances are declining rapidly. That said, the B+H fleet will be forced to come off the water in 2007, so they do not have much time to earn their way out of debt. Another option is for the company to attempt to access the public equity market through a PIPE or a secondary offering – and we have no doubt that a few of our investment banking friends have made the journey up to the bucolic and littoral offices of B+H. According to our calculation, B+H has about $15 per share in cash and steel, though the product tankers are coming off the water in 2007 due to regulations.
With Trøim at Carnivale in Rio, Shipping Deals Slow Down
With Trøim at Carnivale in Rio, Shipping Deals Slow Down
Navios Selling, Selling Navios
There’s been a lot of buzz in the ship finance world this week about Lazard’s auction of Connecticut-based Navios Corporation. For those that missed it, Navios major shareholders, which are comprised of the company’s management, the Leventis Group of Greece and Saltchuk of Seattle, together hired investment bank Lazard Freres to sell the asset-light dry bulk owner operator a few months ago, and as bids came in late last week the market was aflutter with speculation and excitement.
Many of the shipping investment banks were representing bidders on the deal, which saw valuations range from $450 million to over $550 million. The deal also piqued the interest of many of the dominant consolidators and traders like OMI, Restis and Fredriksen, along with Goldman Sachs and George Economou‘s recent, oversubscribed and cash-laden DryShips. As we go to press tonight, blank check company International Shipping Enterprises announced that, “following a competitive bidding process, it executed an agreement providing for an exclusive period to negotiate definitive documentation to acquire all of the shares of Navios.”
For those who don’t know the company, Navios was founded 50 years ago as the shipping subsidiary of United States Steel Corporation, and today the fleet is comprised of 28 panamax and handymax vessels. We don’t have the offering memo on this deal, so we won’t even play around with a valuation because it’s impossible to do with any accuracy. Here’s why: of the company’s 28 vessels, the 6 ultra handymaxes are owned, and of the 22 long-term time chartered vessels, 15 are currently in operation and the remaining seven are scheduled for delivery at various times over the next two years. Moreover, Navios has options to acquire 13 of the time-chartered vessels. Further, we suspect that the owned vessels have a substantial net asset value and historically the vessels controlled under the largely Japanese charters-in have low daily rates and cheap purchase options. If that weren’t enough of a rat’s nest for valuation, Navios generates loads of money trading ships and FFAs and owns and operates a bulk terminal in Uruguay to boot. That’s why we won’t touch it.
We will say, however, that we always find it fascinating when asset-light shipping companies, whether they are traders or non-owning pools, solicit a valuation for their businesses. We say fascinating because historically shipping companies have had a hard time proving worth beyond steel irrespective of the talents of their management or sophistication of their software. That said, there have been some success stories, the best of which is Noble Group, which has a $3 billion market capitalization on the Singapore Stock Exchange. PacBasin also got some credit for its management. Noble, like Navios, owns few ships but instead make their money trading commodities.
Until we have more information, all we will say is this: if any asset-light shipping company could break ground in gaining a high valuation, it is Navios and it is now. The company has an incredibly good reputation and has developed what we understand to be highly efficient freight forecasting models – which begs another question: why are they selling?
Navios Selling, Selling Navios
There’s been a lot of buzz in the ship finance world this week about Lazard’s auction of Connecticut-based Navios Corporation. For those that missed it, Navios major shareholders, which are comprised of the company’s management, the Leventis Group of Greece and Saltchuk of Seattle, together hired investment bank Lazard Freres to sell the asset-light dry bulk owner operator a few months ago, and as bids came in late last week the market was aflutter with speculation and excitement.
Many of the shipping investment banks were representing bidders on the deal, which saw valuations range from $450 million to over $550 million. The deal also piqued the interest of many of the dominant consolidators and traders like OMI, Restis and Fredriksen, along with Goldman Sachs and George Economou‘s recent, oversubscribed and cash-laden DryShips. As we go to press tonight, blank check company International Shipping Enterprises announced that, “following a competitive bidding process, it executed an agreement providing for an exclusive period to negotiate definitive documentation to acquire all of the shares of Navios.”
For those who don’t know the company, Navios was founded 50 years ago as the shipping subsidiary of United States Steel Corporation, and today the fleet is comprised of 28 panamax and handymax vessels. We don’t have the offering memo on this deal, so we won’t even play around with a valuation because it’s impossible to do with any accuracy. Here’s why: of the company’s 28 vessels, the 6 ultra handymaxes are owned, and of the 22 long-term time chartered vessels, 15 are currently in operation and the remaining seven are scheduled for delivery at various times over the next two years. Moreover, Navios has options to acquire 13 of the time-chartered vessels. Further, we suspect that the owned vessels have a substantial net asset value and historically the vessels controlled under the largely Japanese charters-in have low daily rates and cheap purchase options. If that weren’t enough of a rat’s nest for valuation, Navios generates loads of money trading ships and FFAs and owns and operates a bulk terminal in Uruguay to boot. That’s why we won’t touch it.
We will say, however, that we always find it fascinating when asset-light shipping companies, whether they are traders or non-owning pools, solicit a valuation for their businesses. We say fascinating because historically shipping companies have had a hard time proving worth beyond steel irrespective of the talents of their management or sophistication of their software. That said, there have been some success stories, the best of which is Noble Group, which has a $3 billion market capitalization on the Singapore Stock Exchange. PacBasin also got some credit for its management. Noble, like Navios, owns few ships but instead make their money trading commodities.
Until we have more information, all we will say is this: if any asset-light shipping company could break ground in gaining a high valuation, it is Navios and it is now. The company has an incredibly good reputation and has developed what we understand to be highly efficient freight forecasting models – which begs another question: why are they selling?
Written by: carisk | Categories: Freshly Minted, Mergers & Acquisitions | February 10th, 2005 | Add a Comment
Healy & Baillie Makes Key Hire to Expand Capital Markets Practice
Healy & Baillie Makes Key Hire to Expand Capital
Markets Practice
George Economou isn’t the only Greek that came to the U.S. capital markets this week. Leading New York maritime law firm Healy & Baillie announced on Monday that the firm has added public securities law to its practice areas with the arrival of Antonios (Tony) C. Backos as partner. Formerly with the London and New York offices of Weil, Gotshal & Manges, LLP, Mr. Backos “brings to the firm a wealth of experience in public securities law, mergers & acquisitions, private equity, and general corporate work,” stated John Kimball, Chairman of Healy & Baillie.
In our view, the timing could not be better for Healy, and this was a very intelligent move. With more than a dozen shipping deals en route to the capital markets, the law firm will now be able to leverage its existing client relationships by serving as issuer’s counsel on public and private debt and equity deals. The move is an important addition to the work in the market that Seward & Kissel has been doing for many years by giving issuers an option as well as a place to turn when conflicts arise based on previous or current relationships. The fact that Tony is fluent in Greek (and will likely be able to find his way around the Posidonia parties) will also be a great asset to Greek clients interested in exploring or executing a capital markets transaction.
George Economou isn’t the only Greek that came to the U.S. capital markets this week. Leading New York maritime law firm Healy & Baillie announced on Monday that the firm has added public securities law to its practice areas with the arrival of Antonios (Tony) C. Backos as partner. Formerly with the London and New York offices of Weil, Gotshal & Manges, LLP, Mr. Backos “brings to the firm a wealth of experience in public securities law, mergers & acquisitions, private equity, and general corporate work,” stated John Kimball, Chairman of Healy & Baillie.
In our view, the timing could not be better for Healy, and this was a very intelligent move. With more than a dozen shipping deals en route to the capital markets, the law firm will now be able to leverage its existing client relationships by serving as issuer’s counsel on public and private debt and equity deals. The move is an important addition to the work in the market that Seward & Kissel has been doing for many years by giving issuers an option as well as a place to turn when conflicts arise based on previous or current relationships. The fact that Tony is fluent in Greek (and will likely be able to find his way around the Posidonia parties) will also be a great asset to Greek clients interested in exploring or executing a capital markets transaction.
Although Tony has not previously been active in the bulk shipping market, while at Weil Gotshal he was involved with the acquisition by Chiles Offshore Inc. (formerly listed on AMEX) of an oil drilling rig, the merger of GIA2, Inc. with and into Chiles Offshore in 2001, and the Chiles Offshore IPO on the Amex in 2000. He also advised on SEC filings for SEACOR Smit Inc.
Written by: carisk | Categories: Freshly Minted, People & Places | February 3rd, 2005 | Add a Comment
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