A long-term Dorian LPG investor that helped pave the way for BW LPG's $1.1bn offer says consolidation of the VLGC sector is "long overdue" and the industry's overall health will be the better for it.
Metropolitan Capital Advisors put a shareholder proposal on the ballot of Dorian's last annual meeting that the company end its "poison pill" provision, which aimed to block an unsolicited takeover of the New York-listed VLGC owner.
The proposal was narrowly defeated in a vote last September. But Dorian's management and board, nonetheless, redeemed the poison pill in January.
After the pill had been redeemed, BW Group was able to increase its stake in the company to 14.2%.
Soon after BW LPG unveiled its stock-for-stock offer for Dorian at the end of May, one of Metropolitan's co-founders, Jeffrey Schwarz, sent an email to chairman and chief executive officer John Hadjipateras and director Tom Coleman voicing his support for consolidation in the VLGC sector.
"Consolidation of ownership in the VLGC sector is long overdue," Schwarz said.
A Dorian representative declined to comment on the email, citing the company's earnings release scheduled for 15 June.
VLGC overbuild benefited charterers
Schwarz, whose firm has held Dorian since it went public in 2014, tells TradeWinds that the supply-demand balance in the industry has "accrued to the benefit of charterers," resulting in unsustainably low day rates.
“While the low day rates are obviously not good for ship-owners, in the long run it will not be good for charterers either, as owners will have no incentive to invest in new vessels, resulting in an aging fleet less capable of meeting charterers needs,” Schwarz said.
Some analysts have said Dorian’s younger assets should command a slightly better offer than the 2.05 BW LPG share for each Dorian share originally floated.
Schwarz did not express an opinion on the specific ratio for the transaction. But he says "the idea of an exchange ratio based on a similar percentage of each company’s net asset value is the fairest way to go."
Schwarz also points to the difficulty in in valuing vessels of different ages in a market where vessels rarely change hands.
"I would love to have a premium, but I can't make the intellectual case for it," Schwarz said. "The synergies that will be realised across both company's buinessess once the deal is consummated will accrue to the benefit of both company's shareholders."
“If there is a better deal to be done-that will be great," Schwarz said. "But what is most important is that the board of Dorian not lose this opportunity to facilitate the consolidation of the industry, which is the way value will be maximized for the company’s shareholders.”
