Activist investors, low NAV, and delivering shareholder value

Ship finance has a reputation for its dry subject matter, but Marine Money has consitently dispelled the stereotype with some fiery conversations. Famously, the 2023 event saw a major dustup regarding investors’ attitudes towards micro-cap shipping companies, especially those with continued dilutive share issuances. 

This year, it was a panel titled “Animal Spirits: Making Public Markets Work for Companies & Investors” that generated a different color of fireworks, and, specifically, the topic of “Stubborn Below-NAV valuations.” NAV refers to Net Asset Value, one metric frequently used by maritime investors in their pricing of shipping shares. The panel was also asked to consider the issues of “shareholder activism”, where outside investors attempt to gain seats on the company Board of Directors, ostensibly to influence company policies or actions, often with a stated objective of increasing share prices that have faltered far below NAV.

These issues had a recent real-life impact on panelist Paul Leand Jr., Managing Director and CEO of shipping merchant bank AMA Capital. Up until early April 2024, Leand was Chairman of the Board of Eagle Bulk Shipping (NYSE- “EGLE”) which was absorbed into Star Bulk (Nasdaq- “SBLK”). In the discussions leading up to the stock-for-stock merger deal, which was agreed in late 2023, the subject of EGLE’s shares valuation remaining stubbornly below NAV, despite shareholder-friendly actions, figured prominently. 

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Activist investors sometimes try to shake things up. In referring to one alleged activist, with a lengthy shipping background, who attempted to gain a seat on the Board of Genco Shipping (NYSE: “GNK”), a company with many similarities to EGLE. Leand accused the investor of greenmail – the action of buying enough shares in a company to threaten a takeover, pressuring the company to buy shares back from the greenmailer at a premium to prevent the takeover.

He then mentioned efforts a year earlier when EGLE had been presented with another outside investor with a lengthy shipping pedigree. “The problem is…neither one of them wanted to buy the company. All that they wanted to do was gain control over the company…and continue to do what they did with other public companies that they controlled,” said Leand. 

Fellow panel member J Mintzmyer, Founder and President of advisory Value Investor’s Edge, offered a nuanced take on company valuations, proxied through NAV. In the panel dialogue, which alluded to a number of listed shipping companies that were closely controlled by dominant families, Mintzmyer said: “NAV is a metric, just like anything else, and you have to think about what the market is saying about a company that trades at 50% of NAV.” 

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He added, “When a company trades at 50% of NAV, the market is saying that…the management is so misaligned…” At this point, Leand jumped into the conversation, expressing a view that companies needed to support their shareholders, including through returning money to shareholders, and not continue in a business just for its own sake without any intention of providing value to outside equity investors.

In the discussion, Mintzmyer said that sometimes share price to NAV improves over time, as investors gain comfort with the management and put trust in its operational prowess and vision; he specifically mentioned Okeanis Eco Tankers (NYSE- “ECO”/ OSLO- “OET”) and International Seaways (NYSE- “INSW”) as examples. 

But Paul Leand pointed to the need for definitive action where share languishes and trades well below the NAV.  “At Eagle Bulk, we looked at the future and said that we have to grow or die. whether our shareholders were better off in someone else’s hands. So we took that decision and we picked up the phone and we called Star Bulk. And if you are not in a company where that’s an option, that’s why you are at a discount,” said Leand.