It will also boost Star Bulk's market capitalisation to just over $1bn, based on the price of the company's 54.104m shares in circulation when the deal was announced. Investors liked the news and the share price has moved upwards since.
The deal still needs approval at a special meeting from a majority of Star Bulk shareholders not affiliated with Oaktree or the Pappas family. It's reported another fund, Monarch Alternative Capital, which owns 20.9% of Star Bulk and represents 28% of the unaffiliated vote, has agreed to vote all its shares in favour.
Shipping's largest private equity investor, Oaktree will have a 61.3% share of the new company with Pappas controlling 12.5% of the stock following the all-shares deal. Pappas will become ceo and Star's incumbent ceo Spyros Capralos takes the title of non-executive chairman.
Both Pappas, a former partner and close associate of DryShips / Ocean Rig boss, George Economou, and Capralos, a former chairman of the Athens Stock Exchange among other top posts, quickly confirmed growth is the target of the new Star Bulk. Its combined fleet of 69 vessels of 8.7m-plus dwt includes 33 capesizes and newcastlemax vessels. Its tally includes 39 eco and seven semi-eco vessels, is just the beginning.
“One of the primary goals of the transaction is to create a market leader that can continue to acquire additional vessels and fleets,” said Pappas, in conference call after the original announcement of the merger.
“We have been actively searching for additional assets to acquire and will continue to engage in discussions,” said Pappas, adding, “We may enter discussions at any time with either third parties or affiliates. We are focused on further expansion and will continue to acquire opportunistically high quality tonnage at attractive prices.”
Capralos, came straight to the point: “Star can be a natural consolidator in a fragmented market,” he said. “We are a company that has been transformed in the past couple of years. I think there is still room for further growth and we will be evaluating the market.” He ruled out paying dividends for the time being. “This is not the time to pay dividends because we are in growth mode,” he said.
Star Bulk will have newbuilding commitments of $1.599bn, of which $229.4m has been paid and $532.1m in financing has been secured. Capralos said the funding gap of $203m will be met via the capital markets and cash flow. Prior to the deal, Capralos estimated Star Bulk was $100m to the good on its newbuilding investments and Oceanbulk $200m up.
Eirik Haavaldsen of Pareto Securities says the merger was “not entirely unexpected”.
Observers are now wondering how long it will be before this process will ultimately involve the Excel Carriers fleet of some 36 ships, also controlled by Oaktree, after the ouster of ceo Gabriel Panayiotides, being merged into Star Bulk.
Then there is Eagle Bulk. Oaktree is a key player at Nasdaq-listed Sophocles Zoullas-led supramax operator currently struggling to overhaul a $1.1bn credit facility. Oaktree bought Eagle debt in the secondary loan market.
Oaktree is not the only PE fund doing business with Pappas. Oceanbulk and Augustea-Bunge-York (ABY) formed the Malta registered joint venture Heron Ventures to acquire 12 bulkers auctioned when Italy’s Deiulemar Shipping went bankrupt. ABY is, a joint venture between Augustea Bunge Maritime and private equity firm York Capital Management and was established in October 2013.
Heron’s bid of EUR82.5m ($114m) secured the Deiulemar ships of between 65,000 / 175,000 dwt at auction in January and the joint venture has since sold seven of the units, four mid-90s built panamaxes for $28m and a panamax and two 123,000-tonners for demolition raising a total $19.65m.
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