From Freightwaves, August 7:
Shipping takeovers are even less likely than before
COVID-19 put a temporary kibosh on mergers-and-acquisitions (M&A) activity — and not just for shipping. According to Refinitiv, the value of U.S. M&A deals fell 40% year-on-year in the first half. Now that the initial shock of the outbreak has passed, will shipping companies regain the urge to merge?
There has been a higher-than-usual number of M&A questions on quarterly conference calls in recent days. One likely reason for analysts’ heightened interest: Takeovers are one of the few big catalysts left for these limping stocks.
Shipping executives confirmed on the calls they want to do M&A deals. But consolidation has always been hard due to insider interests. And two barriers loom particularly large in 2020: depressed stock valuations among buyers and a lack of desperation among sellers.
Shares as M&A currency
“Last quarter we told people that it was probably not a good time for consolidation because everybody was uncertain as to the future. I think that has changed,” commented Hamish Norton, president of Star Bulk (NYSE: SBLK), during a quarterly call on Thursday.
“I think people are getting more comfortable with the current situation and the future and with how the world will react to COVID-19,” he opined.....MUCH MORE
We’d be very interested in consolidation opportunities that fit with our operations and do not increase our leverage,” said Norton.
However, he said that Star Bulk is only looking to use its own shares, not cash, to pay for acquisitions.
A deal would also have to value Star Bulk’s shares at net asset value (NAV). NAV is the market-adjusted value of the fleet and other assets minus debt and other liabilities.
The discounted-share conundrum
The problem is that Star Bulk’s shares are currently trading at a 35% discount to NAV (according to Jefferies’ estimate). And almost all other listed shipping companies are also trading at a discount to NAV.
As Jefferies analyst Randy Giveans previously told FreightWaves, “It’s often difficult [for the two sides] to come together when companies are trading at large discounts to NAV.”...
