It has been a year in the making, with the $1.65bn merger with private Diamond S Shipping having to survive a unanimous rejection by the board of US-listed Capital Product Partners last June before getting back on the road to completion.
One of shipping's biggest consolidation plays is set to close today with the combination of Capital Product's tanker fleet with that of Diamond S, and a spin-off of shares that will begin trading immediately under the Diamond S brand on the New York Stock Exchange.
The deal will create the world's third-largest public product tanker owner and fifth-largest public tanker company by dwt, with 64 units valued at near $1.5bn, according to the merger partners.
Diamond S chief executive Craig Stevenson, will lead the combined venture, while Capital Product founder Evangelos Marinakis will be a 6% shareholder.
Terms of engagement
However, it all might have gone wrong if things had not picked up after a meeting of Capital Product's board in Athens on 1 June last year.
By that time, the two sides had been talking for months, having first come together through investment bank Stifel in the closing weeks of 2017, according to Capital Product's filings with US securities regulators.
Diamond S had sent the June board meeting an offer allocating $311m in debt to Capital Product's tanker business, $15m in cash, $4m in working capital and an 8.3% premium to the Greek owner's tanker fleet.
Not a single Capital Product director supported the deal, directing their management to seek a better offer from their counterparts at Diamond S, which is based in Greenwich, Connecticut.
A sale of the tanker fleet in bulk would be challenging given the limited universe of potential buyers and downside risk arising from the average age of the fleet
Capital Product Partners
That set in motion talks that led to what is described in the filings as “the July 4 proposal” — forwarded in writing on America's Independence Day by the US owner — containing the terms that eventually would seal the combination.
Winning combination
While keeping other terms similar, Diamond S upped its offer to a 10.3% premium over the Capital Product's net asset value (NAV), which Capital Product’s board unanimously approved. It was announced jointly on 27 November.
Capital Product and Diamond S largely kept the talks under wraps, but not quite. TradeWinds reported on 9 August that the two were in discussions, with both declining comment at the time.
And that time, Capital Product may still have been ruling out other options.
As late as October, the Marinakis-led outfit — which operated as a master limited partnership (MLP) — spoke with board financial advisor DVB Corporate Finance about alternatives: keeping the tankers and raising equity, selling the tankers piecemeal or as a fleet, or selling all of Capital Product, which also included a containership fleet.
Yet each option presented a downside, largely unchanged from the realities Capital Product confronted in July, when it huddled with Stifel and its own advisor, Evercore Partners of New York.
“A sale of the tanker fleet in bulk would be challenging given the limited universe of potential buyers and downside risk arising from the average age of the fleet,” Capital Product said in the filing.
Blending opportunity
This was especially true “compared with the opportunity of blending the tanker fleet into a newly floated company at a premium to NAV with potentially more upside on the market values of the combined company and remaining [a containership] company than on the market value of CPLP [Capital Product Partners] on a stand-alone basis”.
This story has been amended since publication to reflect that Diamond S trades on the New York Stock Exchange.
