Privately owned Scorpio Group has made a surprise raid on the offshore sector taking control of Herbjorn Hansson's Nordic American Offshore after investing $5m in a private placement.
Under the purchase, Emanuele Lauro steps in as chairman and chief executive officer of the struggling owner of offshore support vessels while Hansson departs the board of New York-listed NAO.
The deal also sees Robert Bugbee seated as president and Cameron Mackey as chief operating officer. Both hold the same positions as officers of Scorpio's two existing public companies, Scorpio Tankers and Scorpio's Bulkers.
Fillipo Lauro, Emanuele's brother, has been appointed vice president.
Scorpio paid $0.42 per NAO share, which was the stock's closing price today. That would give Scorpio about 12 million shares — just under 20% of the 62 million shares outstanding.
The purchase and management changes have been approved by NAO's full board and by major shareholders, including Nordic American Tankers, the Hansson-founded and led suezmax owner from which NAO was spun off.
"I am honored to lead this company through the next stage of its development," Emanuele Lauro said in connection with his new role with the New York Stock Exchange-listed company.
"Though near-term challenges of the offshore market exist, I believe NAO has all the necessary attributes to succeed in the longer-term: high-caliber people, high-caliber assets, and strong relationships with key stakeholders, first among them its lenders and its shareholders. My focus in the coming weeks will be to ensure that this great enterprise can appropriately position itself for the improving fundamentals to come."
Lauro also thanked Hansson for his support.
"It is a testament to his loyalty to the business. He has built a commendable platform with a promising future," Lauro said.
'Cheap ticket to ride'
Clarksons Platou Securities acted as financial advisor to NAO in connection with the private placement.
Turner Holm, Clarkson Platou's managing director of equity and credit research, told TradeWinds: "For $5m Scorpio have bought themselves a cheap ticket to ride.
"NAO’s vessels have a newbuild parity of about $250m, and even with circa $135m in debt, there is significant excess value to be captured in the event of a recovery to a more balanced offshore market.
"Adjusted for the share issue, the current market cap is just over $30m."
He added: "Given Scorpio’s track record in capital markets, it’s natural to expect that NAO may not remain a 10 vessel company or a $30m market cap.
"In Scorpio’s private offshore activities, the company has pursued a term strategy in West Africa, while NAO played the spot market in the North Sea for most of its history.
"One might hope that Scorpio’s relationships with oil majors could help NAO win further contracts, including in regions outside the North Sea. This one will be exciting to watch going forward."
Clarksons Platou pointed out the share issue provides needed liquidity to maintain covenant compliance as well as offering a pathway to growth.
Holm added: "While NAO shareholders surely would have preferred not to issue shares at such a low price, the company needed to address its $5m minimum liquidity covenant from its credit facility before the end of the year. As of the third quarter 2018, NAO reported $6.6m in cash and had seen its cash reserves move steadily lower throughout 2018.
"In addition Scorpio’s capital markets and banking relationships could help NAO access capital should accretive opportunities arise."
The private Scorpio Group in October 2017 confirmed to TradeWinds that it had acquired two anchor handling supply tug supply vessels. At the same time, TradeWinds reported that Scorpio had made previously unknown moves in the crew boat market.
Scorpio's 10 existing units were then working in the West Africa market.
“We are definitely looking at building a position,” Lauro said then. “Once we reach the critical mass necessary, we will be looking at opening up to either going public, or to capital providers and other avenues.
“For the time being, we are keeping it private. We don’t feel we have the critical mass necessary to attract institutional investors, yet.”
Today's deal comes only weeks after Nordic saw a planned merger with Canadian offshore player Horizon Maritime break down for unexplained reasons. Horizon would have taken 52% of the Hansson company.
NAO owns and operates a fleet of 10 platform supply vessels averaging about 4,000 dwt with an average age of about 5 years. Nine are actively trading, primarily engaged in the North Sea offshore market between the United Kingdom and Norway. One vessel is still laid-up on the west coast of Norway.
According to its third quarter filing, Nordic American Offshore has just $6.6m in cash, with $135m in debt and an operating loss of $6m. For the third quarter, it posted an $8.4m loss, at least the eighth consecutive quarter it failed to make money.
Bugbee also will be a board member in the new structure.
Marianne Lie has resigned as executive vice-chair and will remain a director.
