Robert Bugbee pauses to reflect for a moment when asked about the big deal recently completed by Diamond S Shipping and his former colleague at OMI Corp, Craig Stevenson.
Through a $1.65bn stock-for-stock merger with New York-listed Capital Product Partners, Stevenson finally has managed to take public the tanker owner he formed in 2007 and expanded in 2011.
Diamond S has suezmax crude tankers and MR product tankers, just as OMI did when it was led by chief executive Stevenson and president Bugbee before a $2.2bn sale in 2007.
And as a listed product carrier owner, Diamond S will compete directly with Bugbee’s Scorpio Tankers, which has 109 tankers that are either owned or lease-financed.
Still, it is clear from Bugbee’s remarks in an interview with TradeWinds at Scorpio’s Manhattan offices that he welcomes the recent developments with his old partner.
Craig loves tennis. He’s a really good player. He once told me that what’s special about tennis is that it doesn’t matter how much you’re losing by, you haven’t lost until you’ve lost that last point. And I think that’s really served him well.
“Craig loves tennis. He’s a really good player,” Bugbee says. “He once told me that what’s special about tennis is that it doesn’t matter how much you’re losing by, you haven’t lost until you’ve lost that last point. And I think that’s really served him well.”
Into the net
Certainly a set was lost when Diamond S tried to take its product fleet public in 2014 through an initial public offering.
It had a deal on the table with investors, but walked away after celebrity investor and then-chairman Wilbur Ross determined the pricing was not high enough.
The volleying continued, as Diamond S was rumoured to be in discussions with fellow owners ranging from Ardmore Shipping to Torm to Hafnia Tankers to Teekay — and even Capital.
In the view of observers, some of those prospective combinations might have left Stevenson and his team in charge of the new company, and some might not have.
The Capital deal does that, and suggests that while the tennis match may have gone to five sets, Stevenson has emerged as the victor.
“I’m really happy for Craig and all of our old OMI friends that they’ve managed to survive this period and that they’ve been able to become an acquirer rather than a seller,” Bugbee says.
“We welcome them when they eventually become a publicly traded company,” he says, alluding to the planned closing of the merger in the first quarter of 2019.
But Bugbee is not quite finished with his reflections. There is at least one thing he does not like about the Diamond-Capital partnership, and he parses his words slowly and carefully.
Management concerns
“Craig has led OMI successfully in the public markets and has done [financial] offerings before, so this advice is not necessary for Craig, but rather for his shareholders to learn from others’ experience,” he says.
I believe mutual funds and long-only funds who invest today would prefer to know that management manages a company for all the shareholders, not for a select few
“They should probably not have board positions in the public company. I believe mutual funds and long-only funds who invest today would prefer to know that management manages a company for all the shareholders, not for a select few.”
Bugbee cites the story of the former Gener8 Maritime, which struggled to trade efficiently as a public company and was eventually acquired by rival tanker owner Euronav, which became its management.
“If memory serves correctly, one of the biggest pushbacks for Gener8 was their board representation by the private-equity founders. The long-onlies assumed it would be self-serving and an overhang to the stock,” Bugbee says.
“This company could have Craig or an independent as chairman, but in any case they should trust Craig entirely and they would do very well to do so.”
Bugbee’s remarks stem from what has been publicly disclosed about the composition of the new Diamond S board.
WL Ross executives
The new panel will feature an executive of top investor WL Ross & Co, Nadim Qureshi, as chairman. A second WL Ross executive, Harold “Hal” Malone, will also have a seat.
Qureshi is managing partner for WL Ross, while Malone is the firm’s head of transport.
The third director nominated by Diamond S, Kate Blankenship, was a long-standing director for companies controlled by prominent shipowner John Fredriksen, and was classified as an independent director in those cases.
Two more directors will come from the Capital camp. Jerry Kalogiratos is chief executive and Gerry Ventouris is chief operating officer of Capital’s general partner.
The other directors are Stevenson and Bart Veldhuizen, the veteran banker.
Diamond S investors will own 67% of the share capital in the combined company.
The two biggest stakeholders in Diamond S — WL Ross and First Reserve — will hold about 24% and 20%, respectively, in the new company.
Wilbur Ross has divested his interest in WL Ross, his investing company, and is now US commerce secretary under President Donald Trump.
No comment
An email message to Stevenson concerning Bugbee’s comments was not returned before TradeWinds went to press.
In a conference call after the Capital announcement, Stevenson told equity analysts he expected Diamond S' foundational investors to stay with the newly public vehicle even beyond a six-month “lock-up” period required in the deal.
“At OMI, we happened to pick a point close to the top of the market when we ultimately sold that business,” Stevenson said then.
“We made a lot of money for our OMI shareholders and we’d like to make a lot of money for our [Diamond S] shareholders in the same way.”
