Angeliki Frangou forced Navios Maritime Holdings' preferred shareholders into a "prisoner's dilemma" in an attempt to push them out and fatten her own bank account, a lawsuit alleges.
The complaint, filed in New York federal court last week, charges the Greek shipping magnate and the company's directors with setting up a scheme to get around paying out accrued dividends owed to preferred shareholders, in an effort to pay dividends on common stock.
The move would be a financial windfall for Frangou, who owns 30.6% of Navios Holdings shares and had her bank accounts frozen in a money laundering investigation, the lawsuit said.
"Facing a personal liquidity crisis and potential criminal liability, Frangou has decided to manipulate the tools of corporate power to engage in coercive and disloyal conduct," reads the complaint filed by Norman Roberts on behalf of himself and other shareholders.
Navios Holdings "will have implemented a tactic that could eviscerate the market for preferred shares, as it could easily be replicated by other unscrupulous companies".
Roberts filed a similar lawsuit in 2016 in relation to a previous exchange offer. In that case, both parties agreed to abandon the suit and the court denied Roberts' motion to recover attorneys' fees.
"We believe the complaint is completely baseless and we intend to aggressively and vigorously defend against it," New York-listed Navios said.
"The same plaintiff and law firm brought a similar lawsuit in connection with a prior exchange offer we had made and we were completely vindicated by the court."
The suit requests a jury trial, unspecified damages and abandonment of the plan.
Buy in or lose out, shareholders say
In December, Navios Holdings offered to exchange outstanding preferred shares for either $4.83 or $4.77 in cash depending on the series, or $5.52 in 9.75% bonds due 2024. Half the tendered shares would receive cash and the other half notes.
Under the offer, tendering shares would eliminate the dry bulk player's obligation to pay or accrue dividends for those shareholders, which have not been paid in more than three years.
The lawsuit alleges the offer is lowballing the preferred shareholders, as the unpaid dividends are roughly $6.66 per share or $6.56 per share, depending on series. But the shareholders are incentivised to take the deal: If two-thirds of the shares are tendered, dividends are eliminated, leaving those who refuse worse off.
Further, the suit alleges Navios Holdings has told the preferred shareholders that if the deal does not go through, they will delist the shares.
"In other words, they created a classic prisoner’s dilemma: collectively, [preferred] holders are financially better off if they reject the tender offer as inadequate," the complaint reads. "But individually, [preferred] holders are much worse off if other holders tender while they do not."
The latest deal is allegedly the third time Navios has attempted to force preferred shareholders out. The first two, both in 2017, did not include terms that would eliminate the right to dividends.
Frangou's allegedly tight finances
According to the complaint, Frangou had her bank accounts frozen by Greek authorities in November, more than two years after she and 16 others were targeted in an investigation into money laundering.
The charges stemmed from unsecured loans made to Marfin Popular Bank by an investment firm controlled by Frangou. The loans allegedly allowed the firm to purchase the bank's shares in order to inflate its capital.
Last March, the lawsuit says, Frangou pledged more than one-third of her shares in Navios Maritime Holdings in a facilities agreement with Piraeus Bank, which had been passed the loans. Frangou is not able to monetise those shares and the bank may have control over even more of her shares, according to the lawsuit.
"Frangou is likely in need of liquidity with limited options," the complaint reads. "Because she owns over 30% of the company's outstanding common shares, but none of the [preferred shares], she is more incentivised than ever to strip value from preferred holders in favour of common holders."
