Things continue to escalate at Performance Shipping, with Greek shipowner George Economou taking his fight to gain control of the US-listed tanker owner to the New York State Supreme Court.
Economou, who owns around 9% of the aframax specialist via his investment vehicle Sphinx, launched a hostile tender offer in October to acquire all of the company’s outstanding common stock for $3.00 per share in cash.
The offer is seen as highly conditional, with the majority being solely within the control of the company and its board, including the cancellation of the company’s Series C convertible preferred stock, which is held by chairwoman Aliki Paliou and her husband, CEO Andreas Michalopoulos.
Economou has decided to sue insiders and directors of Performance Shipping for allegedly breaching fiduciary duties to shareholders by “improperly creating a dual-class capital structure” that delivered control of the company to the family of its former supremo, Simeon Palios.
Palios’ daughter Paliou controls about 90% of the company via her investment vehicle Mango, together with Michalopoulos and his firm Mitzela.
Sphinx claims that four directors, namely Giannakis Evangelou, Antonios Karavias, Christos Glavanis, and Reidar Brekke, schemed to seize control of Performance for Mango, Mitzela, and the “Paliou family insiders”, thus entrenching chair Paliou and her family “all at the expense of the public holders of the company’s common shares”.
Specifically, the lawsuit claims the insiders and directors designed an exchange offer giving holders of tradable stocks an option to exchange for nonvoting Series B class of preferred shares that they would be unable to sell but later convert to a Series C class of preferred shares with ten-times the voting power of the common stock and with other rights, including receiving dividends.
According to Sphinx, Performance board allowed Paliou to use a private placement to jump the line and exchange her Series B preferred shares for Series C preferred shares several months early, while “the smattering of public shareholders who accepted the exchange offer were left to wait”.
Economou, represented by lawyers at Cadwalader, Wickersham & Taft, said that “under this scheme, the Paliou family insiders effectively issued to themselves a new class of super-voting shares,” adding: “By improperly commandeering control, the directors breached their duties of loyalty and care, and they disenfranchised common stockholders.”
Sphinx also noted in a filing with the US Securities and Exchange Commission that New York-based investment bank Maxim helped facilitate several stock issuances from May 2022 through March 2023 that “substantially diluted the value and voting power of the common shares that remained outstanding just after the exchange offer, while insulating the Paliou family insiders from any of the costs normally borne by shareholders in a capital raise”.
The Greek shipping magnate, who owns more than 100 vessels, is therefore asking the court to cancel the Series C preferred shares issued to Paliou and Michalopoulos and a declaration that those shares are not entitled to vote at the Performance’s 2024 annual meeting, expected to take place in February. He is also requesting that public shareholders who participated in the exchange offer get their common shares reinstated.
“There is a pressing need for the common shareholders’ voting rights to be restored before the company’s 2024 annual meeting…The annual meeting votes will otherwise be tainted by defendants’ self-dealing,” Sphinx said in its complaint to the US court.
Meanwhile, Economou extended his cash offer for Performance’s all outstanding shares of common stock by November 15. He has also accumulated a sizeable stake in OceanPal, another Palios family-controlled shipping company that was spun off by Diana Shipping last year and has yet to state his intentions regarding this move.
