So now what? There is a moment of calm in the tempest between Connecticut’s Eagle Bulk Shipping and its new 16.7% shareholder, fellow shipowner Danaos Corp of Greece, but where do the two New York-listed companies go from here?
Equity analyst Poe Fratt of Alliance Global Partners has been closely following both Danaos’ $75m investment and two key decisions by Eagle Bulk: its buyout of the 28% stake held by Oaktree Capital Management, and introduction of a “poison pill” that blocks Danaos from further stake-building.
Fratt has laid out for clients some thoughts about the possible paths forward for the Greek company in view of the standoff.
Meanwhile, researcher J Mintzmyer of Value Investor’s Edge has polled some retail investors for their thoughts on the recent moves by both companies. Bottom line: they are not big fans, and TradeWinds will return to that in more detail.
But first the rundown from Fratt, who has a “buy” rating on the Eagle Bulk stock.
“What happens from here is not clear, but we see at least four possible scenarios,” he told clients, referring to Danaos (DAC) and Eagle Bulk (EGLE) by their ticker symbols.
They are:
- “DAC sells down their ownership and moves on, possibly bidding on Oaktree’s major ownership interests in other shipping companies.
- “DAC remains a large and passive shareholder as implied by their latest [shareholding] filing.
- “DAC continues to send and release critical letters to the board and other shareholders apply pressure on the board/management.”
- “DAC submits a bid to acquire the remaining 83.3% of EGLE.”
Fratt continues to argue that the “pros” of the Eagle Bulk actions tend to outweigh the “cons”.
But he also acknowledged that Danaos had good reason to complain about some elements of the Eagle Bulk strategy in a strongly-worded open letter this week.
The sore points: the 19% premium Eagle Bulk paid for the Oaktree shares was excessive, was not offered to other shareholders who are now saddled with extra debt, and there was inadequate justification for the poison pill — an anti-takeover measure.
It was first reported by TradeWinds’ Streetwise newsletter on 6 April that Oaktree was interested in selling the stake it had held for nearly a decade, with a number of Greek shipowners reported to be investigating a buy.
High leverage
That report proved to be on target, though much remains unknown about how events unfolded from there: for example, did companies such as Danaos and the others rumoured — including Greece’s Costamare and Cyprus-headquartered Castor Maritime — actually submit bids?
In any case, it seems clear that Oaktree wielded considerable leverage in the talks with Eagle Bulk, unlike an earlier scenario in which it aborted attempts to sell its majority stakeholding in Danish product tanker owner Torm.
“The significant premium paid by EGLE implies that other bidders were interested in the Oaktree position and a de facto auction occurred,” Fratt said.
Now about Mintzmyer and the retail investors. The researcher/investor has argued that Eagle Bulk should have extended to all investors the same offer it gave Oaktree. But he has also been taking the temperature of retail investors through a poll on Twitter.
Bottom line: a clear majority dislike Eagle Bulk’s Oaktree deal, while a smaller plurality groan at Danaos’ investment in the Gary Vogel-led company.
The polls are not scientific but, of nearly 500 responders, 64% termed Eagle Bulk’s Oaktree deal either “poor” or “awful”. A little more than 9% found the deal “great”, with 27% terming it “decent”.
In a separate survey also drawing about 500 voters, Danaos got the thumbs down — though the margins were closer.
Among holders of the stock, 32.1% disliked the Greek company buying into Eagle Bulk, while 24.4% approved. Among non-holders, 23.4% opposed the deal, while 20.2% backed it.
