Current Price: $3.34
Tender Price: $3.55
Upside: 6% Upside
Expiration Date: 4th Oct, 2019
This idea was shared by Dan.
Diana Shipping has launched a tender offer to buyback 1.4m of shares at $3.55. It might be easy to dismiss this one due to low expected proration as the offer constitutes only 1.5% of the market cap. However, this is the fifth tender offer DSX is running this year and more than 75% of tendered shares have been accepted in the last one. Shares are currently at the same levels as before tender announcement.
Here are some stats of the previous tender offers:
Worth nothing that the tender price of the last two offers has been increased from $3.2 to $3.4 and from $3.25 to $3.75 – no explanation was provided.
Additionally, the latest update to the tender document has specifically added this paragraph (emphasis mine):
We do not have any current plans to conduct additional tender offers or otherwise purchase additional common shares. While there can be no assurances that we will do so, based on current market conditions in the dry bulk sector, the current price of our common shares on the New York Stock Exchange, and our current fleet profile, we expect that the conduct of one or more additional tender offers for our common shares may be in our best interests. Any changes in the dry bulk sector or in our stock price, among other factors, could result in a different conclusion. Any sale of a vessel or a tender offer conducted in the future, respectively, is subject to the approval of our Board of Directors in its sole discretion.
With the hindsight of how the previous tenders turned out and potential of further return of capital to shareholders down the line, I think there is a relatively high chance that proration will be above 75% and shares will not drop much after the expiration. My key reason for this assumption is that the tender price is lower than during the last offer ($3.55 vs. $3.75) and unaffected price is 10% higher – making the current offer even less attractive for shareholders than the slightly oversubscribed previous one.
However, take my words with a pinch of salt, as my conviction is mostly based on the outcome of previous corporate actions rather than good fundamental understanding of DSX or shipping industry’s peculiarities.
Insiders not selling
Directors own 29% of the outstanding shares (with 16% held by CEO and Chairman Simeon Palios). Although it is not explicitly stated that management will not sell in the current offer, combined ownership percentage has increased through the last 4 tenders (from 27.5% to 28.9%). Chairman/CEO has definitely not participated in the last 3 tenders.
Q2 results have been released on the 30th of July after the last tender expiration (25th of July) and might have affected shareholders’ perception of the company and in turn the expected outcome of the current tender offer. I am not in a position to judge how good/bad the results have been, but DSX share price declined by 4% on the day of announcement and continued to drop by further 10% over the next two weeks.
However, aside from Q2 results this decline might have also been caused by the expiration of the previous tender offer as shares not accepted for repurchase are usually returned with approximately one week delay (note 10% drop in the table above).
Q2 result announcement and tender expiration also coincided with industry wide sentiment decline whereby share prices of all bulk shippers drifted lower during end of July and beginning of August.
Charts of shippers also closely follow ups and downs of the Baltic Dry Index, which indicates healthiness of the industry and rates that shippers are able to charge their customers. The index is currently at multi year highs and still above the end of July levels (the very last two drops in the BDI chart correspond with the same time period as the chart above).
Taken all of this together I do not see any indications that current tender should attract higher shareholder participation than the previous one. With BDI at all time highs shareholders might be waiting for the higher shipping prices to translate into improved financial performance.
But this is shipping and I do not have a clue about it, so trade with care.