George Economou’s DryShips has placed a $34m valuation on its 49% stake in Connecticut-
based tanker pool operator Heidmar, according to disclosures in an annual report filed last week.
The figure is roughly in line with TradeWinds’ estimate of Heidmar's market value at the time DryShips acquired the stake from Economou's private holding in August 2017.
DryShips says in the disclosure that $34m was the fair value of the Heidmar share at the time of the August 2017 acquisition.
Market value
DryShips has determined that there has been no reason to amend the market value of the stake in the interim.
Heidmar controls about 80 tankers across its pools, with its focus on aframaxes, suezmaxes and VLCCs. While the company retains its traditional headquarters in Norwalk, Connecticut, it has increased the presence of its London office under the leadership of new chief executive James Pippard, who was hired in 2017.
Another 49% of Heidmar is owned by US-based financial giant Morgan Stanley, with the remaining 2% in the hands of Heidmar employees.
DryShips' estimate of its stake implies a total valuation for Heidmar of just more than $69m.
Restructuring
While Heidmar has been in operation for more than 30 years, its structure changed in 2006 when founder Per Heidenreich sold the business for more than $200m to Morgan Stanley.
Experts say Heidenreich chose the perfect time to sell the business, near the height of an exceptional boom in the tanker market. The price was also boosted by a book of highly profitable chartered-in tonnage.
Economou bought his stake in 2008.
Heidmar initiated a sales process in 2016 under which both the Economou and Morgan Stanley shares were available, with the original price tipped to be near $100m.
But the offered price was down to about $70m by December 2016 when FDX Capital emerged as the prospective buyer.
When those talks broke down, US-based financier Fortress Investment Group emerged as the apparent buyer for between $65m and $68m. Sources suggest that deal failed when Economou had a change of heart about selling his stake.
What followed was DryShips’ surprise purchase of the Economou stake, with 12 million DryShips common shares transferred to a private Economou company as consideration.
The price DryShips shareholders paid for Heidmar was left somewhat murky at the time, but TradeWinds estimated that the stake was worth between $32m and $33m, based on the reported agreement with Fortress.
The $34m figure, thus, looks largely in line with those estimates.
Valuation weighted
The valuation weighted discounted cash flows based on a variety of factors: “Heidmar’s weighted average cost of capital, projected charter rates based on the most recent 10-year historical rates for similar vessels as adjusted for any outliers, annual increase in Heidmar’s historical wages-salaries and non-compensated general and administrative expenses, the expected number of vessels under management over the forecasted period, a long-term growth factor, commission rates on projected charter rates and the number of employees as a ratio of the vessels historically managed per employee.”
The analysis assumed a 7.5% discount due to the "lack of marketability" of Heidmar’s private shares. It assumed a long-term growth assumption of 3.2%, and commission rates 2.9% over projected charter rates.
Weighted cost of capital was estimated at 10.8%, while DryShips assumed an average of 63 vessels under management over the forecast period.
Economou is a former partner in the Heidmar pools, but neither his private companies nor DryShips currently have any vessels within Heidmar.
