Diamond S Shipping is merging with Evangelos Marinakis’ Capital Product Partners in a $1.65bn deal, creating one of the world’s largest tanker companies and fulfilling Diamond’s long-held goal of becoming a public owner.
The companies jointly announced the all-stock deal tonight, saying the combined entity will keep the Diamond S name and allow chief executive Craig H Stevenson Jr to remain chief executive, with his management team in senior positions.
The deal is a textbook example of what bankers have called "the new IPO." That is, with US initial public offerings closed to shipping for three years now, more private companies will get public by merging with a listed peer.
Diamond will contribute 43 tankers to the new company — 31 medium-range (MR) product tankers and 12 suezmax tankers.
Capital will bring 21 MRs, three suezmaxes and one aframax/product tanker.
The transaction will create the third-largest listed products fleet in the world, and one of the largest mixed fleets, the companies said.
Handy strength
VesselsValue (VV) assessed the combined fleet as worth $1.5bn and said the company will be the second biggest after Denmark's Torm in terms of handy tankers, with 52 units.
"This merger will be most significant in the MR2 tanker market," said VV analyst Court Smith.
"The trading areas of the two fleets is varied. CPLP appears to bring commercial relationships with operators well entrenched in the Latin American market, particularly Brazil.
"Diamond S MRs see more activity in the US Gulf, Singapore, and the Far East. Regardless of who is ultimately fixing these ships on a day to day basis, the merger now creates an owner with a global footprint in the clean tanker markets."
He added: "We appear to be at the bottom of a market cycle for MR tankers, leaving plenty of upside for the asset value of the underlying vessels."
Shareholders of Capital initially will own about 33% of the new Diamond with Diamond’s existing holders controlling about 67%.
Current holders of Capital Product will receive a distribution of one Diamond S share for each 10.19149 Capital units held.
Boxships retained
Capital will retain ownership of 10 containerships and one dry-bulk carrier under its master limited partnership (MLP) structure, and will quickly conclude a 1-for-5 reverse shares split upon completion of the transaction.
In addition, Diamond is paying Capital a $23m premium, equal to about 3% incremental ownership, for facilitating the transaction. The payment represents about a 10% premium to Capital's net asset value (NAV).
The new company will be listed on the New York Stock Exchange and headquartered in Greenwich, Connecticut, where Diamond is currently based.
Diamond's attempts to find a business combination that would lead to a public listing have been one of the industry's worst-kept secrets. TradeWinds reported in July that it had hired advisory house Moelis & Co to evaluate options.
TradeWinds also reported in August that Capital Product Partners was a new name to have surfaced as among Diamond's potential dance partners, and one that might be willing to take both its crude and clean tankers given Marinakis' history with both types of tonnage.
Neither side would comment at the time, but both hailed the deal in a joint announcement.
"This transaction will occur at an opportunistic time in the cycle and creates one of the largest, highest quality fleets and best capitalized public shipping companies in the market," Stevenson said.
"We are confident that this unique combination will create significant shareholder value through the cycle by using our cash flow to invest in the business via acquisitions and returning capital back to our shareholders."
Jerry Kalogiratos, chief executive of Capital's general partner, also praised the deal.
“We are excited about this transaction, which marks a strategic step to drive value creation for our unitholders, as we expect the sum of the parts following this transaction to exceed the current equity valuation of CPLP," he said.
"Very attractive deal"
J Mintzmyer, lead researcher for Value Investor's Edge, said: "First read, this looks like a very attractive deal for CPLP shareholders.
"The stock has long traded at a massive discount to NAV while the firm has not been given credit for their impressive containership backlog.
"This transaction creates a world-class product tanker fleet and also allows shareholders to participate in a much improved income vehicle. I would caveat that we haven't seen full financials yet, so I reserve the right to follow-up later."
Diamond S sold two MRs to Norden this week.
Stevenson is the former chief executive of OMI Corp, which like Diamond employed a mixed-fleet strategy of suezmax tankers in crude and products carriers on the clean side.
The owner is also know for being the first investment vehicle of private-equity legend Wilbur L Ross Jr., who has since divested his interest in Diamond as part of his new role as US commerce secretary under President Donald Trump.
While Ross has separated himself from his namesake investment vehicle WL Ross & Co, the latter remains a major Diamond backer and will control about 24% of the new company. Stevenson's original cornerstone supporter in Diamond, US-based First Reserve, will control about 20%.
Capital Maritime and Trading, sponsor of Capital Product, will hold about 5%.
DSS will initially nominate three board members: Nadim Qureshi, who will serve as the chairman; Hal Malone, and longtime John Fredriksen associate Kate Blankenship. CPLP will nominate two board members, Kalogiratos and Gerry Ventouris. The board also will include Stevenson and longtime banker Bart Veldhuizen.
Evercore and Stifel are serving as financial advisors and Sullivan & Cromwell LLP is serving as legal advisor to CPLP. DVB Capital Markets LLC is serving as financial advisor and Fried, Frank, Harris, Shriver & Jacobson LLP is serving as legal advisor to CPLP’s special committee.
Moelis is serving as the financial advisor and Jones Day is serving as legal advisor to DSS. Clarksons Platou is serving as industry advisor in connection with the transaction.
