Star shines on merger
Star Bulk shares ran hot this morning as investors reacted positively to a merger with Oceanbulk which will see Oaktree Capital become the largest shareholder in the company.
Star shares hit a high of $13.41 each shortly after the announcement hit the tape and were still trading strongly at $12.505 each at the time of writing.
The merger of Star Bulk, the existing public dry cargo company controlled by Petros Pappas, and Oceanbulk, which was his private equity venture with Oaktree, has created what Star claims is the largest bulker vehicle in the US capital markets with 69 vessels.
“I think this is very good news for Star Bulk, though not entirely unexpected given the fact that Star was all the way intended to operate the ships Mr. Pappas controlled privately,” said Eirik Haavaldsen of Pareto Securities.
“It is clear that 1+1=3 here, and that investors prefer larger market caps. A year ago Star was a forgotten company trading well below NAV, and though the share price has rallied it is still not above NAV, but I would expect this to change now.”
Ben Nolal of Stifel says the share price spike seen today after the deal was announced is understandable.
“It’s a natural response,” he said. “Because it is an NAV to NAV trade, no one is losing value as part of the deal and you are creating a much more marketable business in the capital markets.”
He added: “It kills two birds with one stone. It offers liquidity and a currency for Oceanbulk and Oaktree and removes any potential conflict of interest which might have arisen from the IPO of Oceanbulk.”
Star Bulk becomes the third major dry cargo name to hit the US capital markets this year after Frontline 2012’s capesize orderbook reinvented Knightsbridge and Scorpio Bulkers moved its listing from Oslo’s over the counter (OTC market).
“This will now be a bigger player with many of ships in the water and a lot of newbuildings on order. It is one of the smaller companies in the public market that is instantly becoming one of the more major players in the space,” Nolan said.
Star will take over 15 trading vessels and 26 newbuildings from Oceanbulk as part of the agreement, which sees Oaktree control two thirds of the stock and Pappas around 12%.
“It’s interesting to note that we now will have three relatively newly established drybulk giants on Wall Street, with Star Bulk also primarily owning eco-tonnage,” a third top analyst said.
“I think this will be much more of a ‘competitor’ to Scorpio Bulkers than Knightsbridge though.”
