The reviews from analysts are in, and many believe Hafnia's bid to acquire Ardmore Shipping undervalued its product tanker rival.
But some see the $270m offer as an opening gambit in what could be a beneficial merger negotiation.
As TradeWinds reported on Monday, BW Group-backed Hafnia made public its three-week-old bid to buy Anthony Gurnee-led Ardmore and consolidate the two companies fleets.
The all-stock deal would see 2.4 Hafnia shares swapped for every Ardmore share at a 70% premium of its 12 June closing price of $4.82, with Ardmore coming out owning 17.9% of the combined company.
Ardmore, which trades on the New York Stock Exchange under the ticker symbol ASC, rejected the deal, saying it was "highly opportunistic" and "substantially undervalued" the company.
Analysts agree.
"I think it's certainly to [Ardmore's] point about being opportunistic, that was pretty accurate," said Evercore's Jonathan Chappell.
Non-starter
He noted that shares across the tanker sector were near 52-week lows, with a rough second half expected.
"Every company we cover is undervalued. The smaller you are, the less liquid you are, the less relevant you are to a broader investment base," Chappell said.
"Why would Ardmore consider a price lower than its current share price? It's a non-starter."
Jefferies' Randy Giveans said the deal made sense, and Hafnia's press release made it seem like a "great deal" — until Ardmore revealed the exchange ratio in its own press release later that day.
"This proposed deal was a lowball offer below ASC's stock price and well below ASC' net asset value [NAV]," he said.
"I do believe it would provide the scale and size that ASC needs, but the exchange ratio/price is ridiculously low. No wonder ASC rejected it ... and no wonder Hafnia did not include it in their press release."
Giveans said a combined company would be more attractive to investors and would probably usurp Scorpio Tankers' position as the world's largest product tanker fleet and beat its $770m market capitalisation.
Rough ride
As it stands, Ardmore has a $152m market capitalisation.
Its shares finished Tuesday down $0.44, or 8.8%, to $4.57, erasing all gains made on Monday after the proposed merger news.
Over the past 52 weeks, the company has traded as low as $3.73 and as high as $9.79.
It has been having a rough go of things on public markets lately. Despite posting its best-ever results and record fixtures, its stock has floundered.
In February, Ardmore cut its dividend for the first time in three years, but began rethinking its dividend policy as its shares remained cheap.
"Many clients of mine say they like the company and management, but that ASC is too small for them to own or even trade," Giveans said.
Positives for the sector?
Anders Karlsen at Danske Bank was a little more positive.
"We like the fact that Hafnia is suggesting to use its share actively to consolidate the product tanker space," he said.
"Based on the information provided in the release, the discount to NAV is believed to be larger for Ardmore than for Hafnia, indicating that there would have been some dilution for Hafnia's shareholders."
But Karlsen said the dilution would have been countered by potential savings reaped by a combined entity.
"However, as the transaction was rejected and only made public after this was known, the share reaction should in our view be neutral (it was down)," he said.
"Our conclusion is that we see it as positive that Hafnia is actively pursuing potential opportunities by promoting to use its stock and its competitive edge (commercial strength, low costs and attractive financing) in order to arrive at its target. We would not be surprised to hear more news of a similar nature in the future."
Stifel analyst Ben Nolan said the bid may have been an opening gambit and a deal remains possible if Hafnia sweetens its offer.
He also thinks another bidder could emerge, such as International Seaways, Diamond S Shipping or Torm.
One shipping finance voice told TradeWinds of their surprise the deal was not accepted.
"How they can reject that offer is beyond me," the source said.
"Although Hafnia may or may not increase its bid, I do expect further proposals for ASC to be acquired or possibly for ASC to acquire someone else. Will certainly be a company to watch in the coming months."
