New York-listed Navigator Holdings has signed a letter of intent to acquire Chile's Ultragas in a share-based deal that would create a leading presence in the LPG handysize sector.
Navigator, which in December was bolstered by a $197m investment from leading consolidator BW Group, now is moving to take in Ultragas' 18 vessels through the issue of 21.2m new shares.
The combined company will feature 56 tankers and a valuation near $1.3bn.
The total cost of the deal is around $390m, including the offer of shares worth $193m and taking on debt of $197m.
"We believe this is a very attractive transaction for Navigator Holdings as it will increase its market share in the handysize segment while also reducing costs," said Jefferies analyst Randy Giveans in a note to clients on Monday.
The partners are valuing the combined company at an appraised price of $16.82 each, an 85% premium to Navigator's Friday closing price of $9.10, Giveans said.
Navigator took in BW after the group bought out the 39.1% stake held by private equity's WL Ross & Co in December.
Following completion of the combination, BW will control about 28.4% of the company and Ultragas 27.5%.
Butters welcomed the von Appen family into the combined company in a statement on Monday, saying that Ultranav chairman Dag von Appen would join the board, as would Peter Stokes, an Ultranav board member who formerly headed shipping at investment bank Lazard.
"The Ultragas fleet will significantly strengthen our position in the handysize sector and provide our customers with greater flexibility in transporting smaller parcels in a cost-advantaged basis," Butters said.
Von Appen also praised the combination.
"We have been following the journey of Navigator closely since it was founded in 1997, and we acknowledge and respect the results achieved by Navigator since then and especially David's long-standing vision and dedicated work in developing the company to become the worldwide leader in petrochemical gas transportation," he said.
UltraGas' fleet consists of seven modern 22,000-cbm handysize semi-refrigerated gas carriers, five 12,000-cbm ethylene carriers and six smaller semi-refrigerated ethylene carriers, Jefferies said.
The combined average fleet age will be roughly 9.5 years, but this will likely be reduced as the company could sell up to eight vessels that are more than 20 years old, Giveans wrote.
"Navigator is already the leading player in the handysize segment, and we expect this transaction to further boost its chartering premium and operating efficiencies.
"Also, we expect reduced daily vessel operating and technical management expenses as Navigator will also acquire UltraShip Technical Management Company and a 25% share in UltraShip Crewing Philippines," Giveans said.
The combination also drew from Stifel analyst Ben Nolan, who called it "transformative" for Navigator.
Navigator already owned 27 of the 80 semi-refrigerated handysize vessels in the global fleet. Through the deal, it gains a further seven, yielding a combined market share of 43%.
"With more ships available in more places combined with greater reach into the smaller ethylene vessels, we expect the company should benefit from greater market penetration in higher-margin petrochemical trades," Nolan wrote.
The value of Navigator equity was just over $500m at Friday's closing, Nolan noted. With a further $193m in shares spent on Ultranav, the figure approaches $700m – still well below brokers' assessments of a $1.3bn fleet value, he said.
Nolan projected Navigator to move to Stifel's target price of $15 per share and perhaps beyond.
It closed on Monday at $9.86, up more than 8% on the day.
