US-headquartered LPG vessel owner Dorian LPG has rejected last month’s unsolicited $1.1bn takeover offer submitted by Singapore’s BW LPG.
Dorian said its board of directors unanimously concluded that the proposal is not in the best interests of the company and its shareholders. It says the all-share transaction fails to recognise the value of Dorian’s younger ships and superior commercial performance, while it also forces shareholders to accept equity in a more highly-leveraged combined company. Dorian also says a proposed dual listing is of no benefit to its shareholders.
“The board believes that Dorian’s current strategy is working and that Dorian’s younger, more fuel-efficient fleet with lower leverage protects the company at the bottom of the industry cycle and positions it best for long-term growth and success,” the company stated.
The offer from BW LPG would see Dorian shareholders receive 2.05 BW LPG shares for each Dorian share, equivalent to $7.86 per share. A combined entity would have 73 vessels in total, of which 68 are VLGCs.
John Hadjipateras, chairman, president and CEO of Dorian LPG, sent a letter to BW Group chairman Andreas Sohmen-Pao formally rejecting the offer, the contents of which are below.
This letter is in response to your May 29, 2018 letter indicating BW LPG’s interest in combining with Dorian LPG.
Thank you for your kind words about Dorian’s fleet, management and operating principles.
Since receiving your letter, our Board of Directors, consistent with its fiduciary obligation to our shareholders and in consultation with our outside advisors, has worked diligently to evaluate your unsolicited and conditional proposal. In this regard, we have carefully considered the strategic, financial and commercial merits of the proposal and whether it accelerates our efforts to build shareholder value by enhancing our company’s market position, strengthening our financial position or advancing strategic initiatives.
After these deliberations, the Board unanimously decided to decline your proposal.
The Dorian Board has taken this action for many reasons, including:
Dorian’s Fleet: Younger, More Fuel Efficient, and better prepared for Environmental Regulations.
Your proposal undervalues Dorian on both an absolute- and relative value basis by failing to account for the true value of Dorian’s substantially younger, more fuel-efficient ships as well as Dorian’s superior commercial performance.
BW LPG’s indication of interest fails to recognize the value of Dorian’s 19 ECO-ships, comprising 86% of Dorian’s fleet of 22 ships. By contrast, only about 40% of BW LPG’s 51-ship fleet consists of ECO-ships, and BW LPG’s owned and operated fleet is considerably older than Dorian’s.
Dorian has already invested substantial capital to comply with regulation-driven ship modifications. Our understanding is that the BW LPG fleet will require significant additional capital investment to modernize and comply with regulatory requirements.
Dorian shareholders should not be asked to subsidize BW LPG’s fleet renewal, upgrade, and regulatory compliance costs.
Dorian’s Commercial Performance is Superior
Based on the exchange ratio proposed, BW LPG would benefit from the acquisition of our ships with higher earnings power without paying a price that reflects the value differential in our assets and our commercial platform. Over the past four quarters, Dorian has consistently outperformed BW LPG on key metrics such as EBITDA per vessel and TCE (time charter equivalent) per day.
Dorian’s Balance Sheet is Less Leveraged
A combination of BW LPG and Dorian would improve financial flexibility for BW LPG, but would have the opposite effect for Dorian. BW LPG’s balance sheet is more leveraged, with older assets on average, while Dorian’s balance sheet has considerably lower leverage – Dorian’s net debt to total capitalization (34.6%) vs BW LPG’s (51.7%) -, in addition to having a younger fleet. Our growth trajectory, credit profile, and cash flow accretion would be burdened by a combination with BW LPG, not enhanced.
A Dual Listing is Not a Benefit to Dorian Shareholders
You suggest that the combined company’s stock would have an enhanced trading liquidity due to its larger market capitalization, and propose a dual listing of the shares on the New York Stock Exchange and the Oslo Stock Exchange. We believe the promise of increased liquidity is illusory, as there is limited investor overlap and little reason to believe BW LPG’s existing shareholders would change their currency trading preferences.
Notwithstanding declining your proposal, our Board is willing to discuss acquiring or consolidating some or all of your 17 ECO-ships into our commercial platform. We believe that such a proposal would allow for a more transparent relative valuation and could be concluded relatively expeditiously.
If your Board is interested in this type of consolidation, we would be prepared to enter into discussions about its potential merits.
Thank you and your Board for your interest in Dorian, which clearly recognizes the exceptional business we have created and its long-term potential.
That said, I hope that you understand why the Dorian Board cannot pursue a transaction that is by all relevant measures not in the best interests of our shareholders.
Chairman, President and Chief Executive Officer