Greek containership owner Danaos, the largest shareholder of Eagle Bulk Shipping, has questioned the company’s move to adopt a poison pill in a letter it sent to Eagle Bulk’s board of directors.
Last week, Eagle Bulk bought Oaktree’s 28% stake in the company for $219.3m via a repurchasing program and adopted a shareholder rights plan preventing a takeover.
The repurchase of the shares came after John Coustas-led Danaos quietly accumulated close to a 10% stake in Eagle Bulk in recent months increasing its total stake in the US firm to 11.3%.
Danaos said in the letter addressed to Eagle Bulk’s board that it approached the US company’s management and conveyed its intention to “work collaboratively and constructively with the board and believed that our intention was reciprocated.”
The Greek company complained that Eagle Bulk bought Oaktree’s entire 28% stake in the company at a 35% premium without seeking prior shareholder approval. These transactions also altered the makeup of the company. As a result of the repurchase of Oaktree’s shares, there are 9,283,499 common shares outstanding and Danaos now holds 16.7% of Eagle Bulk which is an increase from the approximately 11.3% purchased in open market transactions.
One of the largest gripes for Danaos is the fact that Eagle Bulk is now prohibited from purchasing any additional shares without triggering the company’s recently adopted poison pill.
“Since these actions were taken by the board, Eagle Bulk shares have declined by nearly 6%, which appears to provide a preliminary assessment of the market’s reaction,” the John Coustas-led firm said.
Danaos further questioned how the $219 million repurchase of Oaktree’s stake protected all shareholders from disruption and how was it beneficial to Eagle Bulk shareholders, as the statement provided by the US company suggested. The Greek firm claimed that it provides risk to the shareholders as the financing of the repurchase was done with debt.
On the topic of the poison pill, Eagle Bulk described it as reducing “the likelihood that any person or group gains control of the company through open market accumulation, or other abusive tactics potentially disadvantaging the interests of all shareholders.”
Danaos said that practically they were the only shareholder that was effectively prohibited from purchasing any additional shares. The company wanted an explanation on how an open market purchase followed by a prompt 13G filing constitutes an abusive tactic “especially in light of the board’s preferential deal with Oaktree.”
The company also questioned the peculiar timing of the poison pill since Oaktree held its 28% stake without a similarly threatening response from the board. To clarify, Oaktree is a $164 billion company that could buy Eagle Bulk at any time, but no poison pill was put in place to prevent it.
Another harmful consequence of the poison pill is the limitation on the rights of the remaining Eagle Bulk shareholders to communicate openly about their investments in the company.
“Given our extensive knowledge of the shipping industry, we feel that we must be able to communicate our views with the company’s shareholders at large to facilitate growth in shareholder value. The board’s defensive measure to adopt the poison pill without seeking the prior approval of shareholders raises the question of whether the board is truly acting in the best interests of stockholders. We can’t buy more stock, and the company seeks to curtail our ability to share our opinions absent a public forum,” Danaos stated.
