GasLog Partners (GLOP) – Expected Higher Bid – 40% Upside

Current Price: $8.75

Target Price: $12.00

Upside: 40%

Expiration Date: end of 2023

MLP buyouts was a successful theme for SSI last year (see SIRE, BKEP, PBFX, SHLX). All these previous setups so far have followed a similar pattern: (1) the general partner with a majority stake in MLP keeps dividends depressed despite the recovery in the underlying business operations; (2) then opportunistically lowballs the initial offer to buy out the minority shareholders; (3) eventually, after a few months of deliberations with the special committee, the offer gets increased by c. 20-40%. MLP structure has lost most of its tax advantages making it hard to raise fresh equity capital to grow the asset base. This eliminated the reason for these vehicles to remain public. That’s why the last few years saw an increasing number of MLPs getting taken private. The latest addition to the theme is the buyout of GasLog Partners (GLOP). I am a bit less excited about this particular setup mostly because I find the cyclical LNG shipping industry to be much more difficult to understand and analyze, and therefore have much less confidence in my assessment of GLOP assets value. However, there are certain aspects of the case that might make GLOP even more lucrative compared to the previous MLP buyouts.

Owner and operator of LNG tankers GasLog Partners has received a $7.70/share takeover offer from its general partner, GasLog Ltd. Part of the consideration would be paid in $2.33/share dividend to be distributed immediately prior to the closing of the transaction. The special committee of independent directors is currently reviewing the proposal.

The offer came at just a 10% premium to the pre-announcement prices and a 50%-60% discount to the ~$15-$20/share levels at which GLOP traded during 2018-2019 before the dividend was suspended. The market is expecting an improved bid and the company’s shares already sit 12% above the offer. I do not have a hard number for the fair value of GLOP assets, but the offer looks way too low relative to the current FCF generation, historical trading levels, and peer valuations. I think there is a decent chance of a price bump to $10-$12/share (15%-40% upside) or even higher. I would expect the case to play out over the next 6 months.

I will start by elaborating on a few details that make this setup different (and potentially more lucrative) compared to the other MLP buyouts I have reviewed. Then I will delve into GLOP’s financial performance over the last few years to show that the business continues to perform well and the company’s share price is depressed only because of the dividend elimination. Finally, I will share some background details on the LNG shipping industry and its cyclicality.

Important note: please consider any potential tax implications due to part of the buyout consideration being paid in MLP dividends. Also there is 10% withholding tax for non-US residents upon MLP unit sale.

 

What makes GLOP case different from other MLP buyouts? 

There are 4 main distinctions that make GLOP stand out from the rest of the MLP buyouts covered on SSI. The first three are clear positives, while the last one is the main difficulty for this case in my eyes:

  • Shareholder approval requirement for the final offer from GP. The main point that makes GLOP situation even more attractive than all other MLP buyouts is that the GP has only 30% stake in the partnership. In all the previous ones, GPs held majority stakes, and the push for the higher offer was in the hands of the special committees only. For the GLOP buyout to pass the shareholder vote, nearly a third of the minority holders will need to be in favor. It gives unitholders power and leverage to negotiate a price increase. It also makes the situation much less dependent on the special committee review, incentivizes the independent directors, and also significantly reduces the risk that GP will steal the company at a lowball price. The only nuance is that aside from the GP no other unitholders can exercise more than 4.9% of the voting power, even if they own a larger stake. However, the only other holder that owns more than 5% is Cobas Asset Management (10% stake), so this restriction is unlikely to have a material effect on the final vote outcome and is mainly meant to limit any activist from jumping on board with a new large stake.
  • 45% ownership of GP by Blackrock. The GP was founded and is controlled by billionaire Greece shipping tycoon Peter Livanos. Till 2021, the general partner used to be a public company trading under the ticker GLOG. In 2021, Livanos partnered with Blackrock’s Global Infrastructure Fund III to take the GP private in a transaction where the PE group took a 45% stake and Peter Livanos retained 55%. I think the involvement of Blackrock further reduces any governance risks and increases the odds of limited partner shareholders eventually receiving a fair deal. Not much information is available on Blackrock’s Global Infrastructure Fund III, but the PE group has recently raised $4.5bn for the new Global Infrastructure Fund IV. The freshly raised capital might be used to invest in GLOP post-buyout to renew and grow its fleet.
  • GLOP trades at a wide 50-60% discount to pre-dividend-elimination levels. All previous MLPs that I’ve covered before have been opportunistically acquired during a period of depressed unit price after a major dividend cut or suspension. The initial bids were lowballed at 10%-30% discount relative to the pre-dividend cut prices. The final offers interestingly always came exactly in line with share price levels before the dividend change. Setting up the privatization process this way allowed the GPs to effectively buyout their limited partners without paying any premium for the materially improved balance sheets and favorable industry tailwinds. GLOP’s bid follows the same pattern but comes at an even larger discount of 50%-60% to the $15-$20/share price levels before the dividend cut. The discount seems unreasonably wide. Despite the dividend cut, the company’s fleet has remained largely unchanged, the balance sheet has significantly improved while GLOP’s earnings and profitability stayed stable. I’ll expand more on these points in the section below, but the bottom line is – the current offer seems significant to low relative to where GLOP used to trade and a material premium will be needed for this privatization to go through.

Final

  • GLOP is a shipping company, so its asset base and profitability dynamics are very different compared to other covered MLPs. In the previous MLP buyout cases the underlying assets were in much more stable, predictable industries – pipelines, terminals, soda ash mine and etc. Meanwhile, LNG shipping, like any other shipping, is a very cyclical industry that I find difficult to value and analyze, especially given the recent turbulence driven by the Ukraine war and Europe shifting away from reliance on Russian energy, pro-longed China lock downs and etc. Most of the company’s vessels operate with short-term contracts that are directly exposed to charter rate fluctuations, whereas GLOP provides limited visibility into the signed contract rates and future earnings potential. GLOP’s vessels are aging and the supply of new more cost-efficient vessels is increasing. Putting it bluntly, this makes it more difficult to get a good feel for how strongly the GP wants to have full ownership of GLOP’s ships and what the final price threshold might be. I’ll expand more on the industry background and related risks in further sections below.

 

Stable business performance since dividend elimination

GLOP trades at a massive 50%-60% discount to pre-dividend cut levels, whereas the company’s EV is currently 40% or about $1bn lower than it was back in 2019. A discount of this size seems unwarranted given that GLOP’s fleet/asset value has remained largely unchanged, the balance sheet has been significantly improved and earnings stayed stable since 2019. Higher interest rates should a negative effect on the company’s valuation, however, 40% change is too extreme

glop ev

GLOP currently owns 12 LNG carriers – 9 TFDE (tri-fuel diesel electric propulsion) vessels and 3 older, less efficient steam turbine vessels. It also leases 2 more ships (1 TFDE and 1 steam). Only 3 out of 12 GLOP’s owned vessels are currently contracted on longer-term charters (expiration in 2026+). Most other ships operate on short-term (1-year) time charters. 

The current fleet has remained fairly similar over the last 4 years. Back in 2019, the company owned 15 ships, 2 of which were later sold and then leased-back, and one steam vessel was sold. While the number of owned vessels went down from 15 to 12, it is important to note that the value of the remaining ships might have actually increased driven by the recent industry tailwinds and ramped-up demand for LNG carriers. The price of newbuilds went up from $180m in 2018-2019 (FLNG presentation – 3rd slide) to $250m last year. The same higher price dynamic was observed in the 5-year-old second-hand tankers. While most of GLOP’s fleet is quite a bit older, it seems like the value of its ships might be higher compared to 2018-2019 levels.

GLOP was originally structured as a funding vehicle for the general partner to dump off older vessels. Following the tax reform, MLPs’ cost of capital shot up, and GLOP found itself in a tight spot as equity issuance became no longer feasible and debt financing was out of the question due to the already levered balance sheet. GLOP and the GP did a few more asset dropdowns financed by pref. equity in 2018-2019 and then at the beginning of 2020, announced a major dividend cut from $2.244/share to $0.5/share to focus on deleveraging. The dividend was eliminated completely in Q3’20. Over the last 3 years, the company has repaid $0.5bn+ of debt and significantly improved its balance sheet.

glop net debt 1

Last year, GLOP already reached its Debt/EBITDA leverage target (excluding prefs) – see graphs below from the Q4 presentation. The cap ratio (debt over assets) target should also be reached in the short term if the current tempo of debt paydown continues – potentially by the end of 2023 or early 2024.

glop net debt

Despite the dividend cut and sharp fall in the share price, GLOP’s earnings have actually remained strong over the last few years. 

glop earnings
* Note: Adjustments made in adj. profit calculations are mostly ship impairment write-downs.

EBITDA for 2023 is expected to remain somewhere in line with the 2022 figure. Currently, all GLOP’s ships are contracted and 87% of available days for 2023 are covered (first graph below). Management guided the contracted adj. EBITDA for 2023 at around $265m (second graph below). However, this figure doesn’t include the remaining unfixed days for vessels that come off contracts mostly in Q4’23, so the final 2023 EBITDA figure is likely to be higher. The average cash burn of a non-utilized ship per day is around $17.5k/day. Open days adj. EBITDA sensitivity to charter rates can be seen in the third graph below.

glop sensitivities

 

Current earnings can support historical $100m dividend levels

Prior to 2020, GLOP was paying around $100m in annual dividends. Declared cash distribution size was calculated by taking adj. EBITDA and deducting financial costs (mostly debt interest), certain capital reserves for ship maintenance/replacement, and pref. equity dividends. In 2017-2019 total deductibles ranged from $110m to $164m. 

glop dividend

The company no longer reports the exact figures for the reserves and financials costs, etc. but estimating it around $145m seems reasonable enough given that since 2019 interest and pref dividend expenses dropped by $20m+, whereas the fleet size shrunk from 15 to 14 (GLOP is liable for the maintenance of leased-back ships). With $265m of already contracted EBITDA, the company would easily be able to support $100m+ dividend for MLP owners. Per unit, this would result in a $1.9 annual distribution, which equals to 25% yield at the current price. In comparison:

  • In 2018-2019 GLOP was trading at around 8-12% yield.
  • Yields of MLP ETFs (MLPA, AMLP) are 7-8%, very much in line with 2018-2019 levels, even though I would expect investors to demand higher returns given interest rate hikes over the last year.
  • The same average 7-8% yield range of MLPs is confirmed by this MLP list (Feb 1), which also shows that currently only several MLPs trade above 10%.
  • Finally – a superior LNG carrier competitor FLNG, with a much newer fleet and longer-term contracts (more stable earnings) trades at 10.7% yield.

GLOP would probably trade at a higher yield than FLNG, but 25% is clearly unsustainable and indicates significant re-rating potential if the dividend was to be reinstated.

 

The offer is too low relative to peers and relative to FCF

GLOP looks undervalued based on peer comparison as well, although, not many directly comparable competitors are available. The company currently trades at 5.3x trailing EBITDA. Smaller, more levered peers like DLNG, ALNG.OL, which also don’t pay any dividends and have similarly old fleets, are valued at much higher trailing EBITDA multiples of 7x and 10x respectively. The above-mentioned FLNG trades at almost 12x.

glop peers 3

One more illustration of how cheaply the GP is trying to snatch GLOP. The current offer is $5.37/unit + $2.33/unit special dividend to be distributed before transaction closing. Given its 30% stake, the GP will receive around $38m from the special dividend and will then have to pay $204m to buyout the remaining 70% minority shareholders. That’s a net $167m of cash needed for GP to take GLOP private. In comparison, just over the last two years, GLOP has generated $343m of free cash flow to equity holders, calculated as OCF less CAPEX, interest, and pref dividends. Most of this FCF was used for aggressive deleveraging, with debt repayments totaling $442m during 2021-2022.

glop fcfe 1

 

Industry Background

LNG shipping, as well as any other type of shipping, is a highly cyclical industry prone to boom and bust cycles. Seasonality is also strongly present with Q4 being the seasonal peak due to the Northern hemisphere ramping up LNG inventories for winter heating. 

Industry dynamics are quite complicated as LNG shipping demand and charter rates are affected by global supply/demand of LNG, supply/demand of LNG ships, availability of LNG terminals as well as political considerations. 

The most recent boom cycle was sparked by the war in Ukraine and Europe’s move towards energy security beyond Russian pipelines. This has created a sharp spike in Europe’s LNG imports and has potentially catalyzed mid/long term tailwinds for the whole LNG industry, including LNG shipping.

glop europe lng spike

Increased demand for LNG carriers drove up the orderbook of LNG ship newbuilds as well as the price of new and secondhand vessels. Charter rates of TFDE ships, which comprise most of GLOP’s ships, was steadily rising in 2022 before spiking to record highs in November. TFDE spot rates reached $450k/day and 1-year time charters broke $200k+/day, pretty much doubling the historical norms for a seasonally high fourth quarter.

Historical TFDE 1-year time charter (TC) rates until early 2022 are shown in the chart below (CoolCo presentation). 

coolco charter

And charter rates for the last two years in GLOP presentation:

spot rates short

However, the winter turned out much warmer than expected leaving Europe with 20% higher LNG inventories compared to historical averages. Consequently, TFDE spot/TC rates have tumbled, but still remain significantly elevated above the historical norms. Spot rate dropped to $70k/day in January and currently stands at $77k/day (vs around $50k historical norms for this time of the year). 

Going forward, Europe is expected to continue replacing Russian pipeline volumes and the demand for LNG should stay elevated for the foreseeable future. Moreover, an additional rise in global LNG demand is expected this year from China, following the lift of Covid restrictions a few months ago. Overall, the LNG market is expected to stay tight for the next 4 years as little incremental supply is expected to hit the market through 2026. LNG ship supply paints a very similar picture, with the majority of current newbuild orders coming online only in 2025 and onwards (see graph from Awilco presentation below). Worth noting, that most of the newbuilds have already been chartered in advance. 

glop ship supply

I wasn’t able to find any charter rate projections for TFDE ships, however, Spark Commodities forecast (see graph below) that the average spot rate for the newest design MEGI/XDF ships this year will stay above 2022 levels. Although TFDE ships are not as new and efficient, positive projections for MEGI/XDF ships might be a decent indication of general expectations for other vessel types as well. From FLNG presentation:

glop megi rates

Risks

  • It’s not clear how biased GLOP’s special committee is. It is comprised of 4 independent directors (total board size is 5 seats) – Curtis Anastasio, Julian Metherell, Roly Fisher, and Kristin Holth. Julian Metherell definitely looks partial to the buyer as he is actually sitting on the board of GP. Curtis Anastasio has been the GLOP’s chair since its inception in 2014. The remaining two, Roly and Kristin, have been appointed rather recently (Feb and Nov of 2021), but Kristin has served on GP’s board for a short period in 2020-2021 before it was taken private. There is a risk that the special committee’s review might lean in favor of the GP and we will see either no bid increase or a very minor bump only. However, I believe this is largely offset by the requirement of GLOP’s shareholder approval. The GP/special committee are clearly very well aware of that. The current market price premium to the initial offer already illustrates how the vote would go if the bid is not increased sufficiently enough.
  • There is always a risk that GP will simply walk away if shareholders reject the low-balled offer. Without dividend reinstatement, MLP units are unlikely to re-rate higher. Any internally generated FCF might be piled into buying new vessels. The downside in this scenario is probably around 10-20%.
  • GLOP business is exposed to LNG charter rate volatility, general LNG market, and geopolitical environment. Although the outlook seems quite positive at the moment, any unexpected geopolitical changes could affect the outlook drastically.
  • GLOP has 4 old steam vessels – 3 owned and 1 leased. All of these were built around 2006-2007 and are substantially older than the other ships in GLOPs fleet TFDE ships (built around 2013-2016). Steam ships are becoming outdated, not because of their age (life cycle is around 30-35 years), but mostly because of their lower efficiency and higher pollution in light of global ESG trends. The industry is already moving towards the newest MEGI and X-DF (two-stroke propulsion) carriers, which are less pollutive and more efficient (30% lower fuel consumption vs TFDE). Meanwhile, steam vessels are getting hit by regulatory pressures, e.g. International Maritime Organization regulations that came into effect in 2023, have put significant speed restrictions on steam vessels (hence reducing efficiency) to control greenhouse gas emissions. These and further regulations might have a negative effect on steam tanker charter rates and impact GLOP’s future earnings – 1 of GLOP’s steam ships is coming out of contract in Jul’23, two more in Oct’23, and the last one in Mar’24.

 

The other MLP buyouts so far

Finally, and at this point, this may very well be a pattern recognition bias, but all recent MLP buyouts have worked out great so far. A number of recent cases followed a very similar scenario. A short description of these is provided below:

  • NBLX – an initial bid from Chevron at $12.47/unit in Feb’21. Two months later, the price was raised to $14.27/unit. 14% increase.
  • PSXP – first bid at $32.57/unit in Apr’21 followed by two raises and a final offer at $43.85/unit. 35% premium in 10 months.
  • BPMP – initial proposal in Aug’21 was at $13.01/unit. The price was raised in 4 months to $14.75. 13% premium.
  • BKEP – the initial proposal came at $3.32/unit in Oct’21. In 6 months, it was adjusted to $4.65. 40% premium.
  • HMLP – first bid at $4.25/unit in Dec’21. At the end of May’22, the deal was revised to $9.25/unit. A slam dunk of +117%. This was mostly driven by the gas price explosion (also around 2x since the offer announcement until the definitive agreement).
  • SHLX – initial takeover interest at $12.89/unit in Feb’22. After 5 months it was revised to $15.85/unit. 23% raise.
  • PBFX – buyout intention was announced in June’22, however, the terms were not disclosed. At the end of July’22, a definitive agreement was signed at $18/unit – 30% premium to pre-announcement prices.
  • SIRE – first bid in July’22 at $17.90/unit. Revised in Feb’23 to $25/unit. +40% bump in 7 months.

53 Comments

53 thoughts on “GasLog Partners (GLOP) – Expected Higher Bid – 40% Upside”

  1. An interesting concentration cluster of ownership; Millennium, 2Sig, RenTec own around 2% each.
    Millennium, Walleye, Cubist and Citadel loaded up Q4 ’22.

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  2. Does anyone know how to screen for these types of take-privates (i.e., to be notified the day of the SEC filing, which in this instance “GLOP” is 1/25/2023)?
    The reason that I wish to know immediately is because the share price has already risen from the announcement date(1/25/2023) to present date(2/16/2023). And I’d like to catch it earlier as soon as possible.

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  3. Thanks for the Write-Up.

    Do we have a rough sense of Cobas’s average purchase price (~10% holder)? Their most recent filing (2/10/23) shows them selling down their position (~7.47% last). Uncomfortable dynamic where the largest shareholder is a seller. They are getting liquidity in the take-out and they’d analyze based on what an appropriate block discount would be to get out of their stake.

    The special committee will reach out to them to get a sense of clearing price (I’d be surprised if the GP doesn’t already know what their price level will be). If Cobas signs a voting agreement, I don’t see why the remaining 12.5% majority threshold will be difficult.

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    • Cost basis on LIFO: 4.83 / FIFO: 4.75
      They started buying mid 2021, reduced in Q4 ’22.

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      • Do you (or anyone else) have a sense if a firm like Cobas would accept less than $10 per share as an “appropriate discount to get out of their stake”? Similarly, is anyone aware of a precedent like this (with a Cobas type of firm) as it pertains to any of the other take-privates completed in the last couple years?

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  4. Thanks for the another great MLP write-up. A few simple questions as I continue to learn about these situations:

    (1) For unitholder approval, is only 66% vote required? Based on your wording, I wasn’t quite sure what the exact threshold is.
    (2) Are unitholder votes always required for these MLP buyouts (although as you mention, are usually not important due to GP majority ownership)? For some reason I thought unitholder votes could be bypassed, although that may be just since my default thought is always the unitholder has almost no rights.

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    • For the buyout to pass, a majority (>50%) of unitholders have to approve the transaction. The GP owns around 30%, so another 20% support from minority shareholders will be needed for the offer to go through.

      In 3 out of 4 previously covered, the minority MLPs unitholder support was either not required as the GP owned 50%+ (SIRE, SHLX) or the vote was merely a formality (SHLX – the GP owned 48%). In the BKEP case, the general partner also had around 30% stake and, similarly to the current GLOP case, shareholder approval was one of the transaction conditions.

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    • What seems slightly different from the last year’s 20F is that the ‘Summary of Risk Factors’ section has been somewhat expanded with various additional statements to show how risky the LNG carrier business is and that any resumption of dividends is unlikely. Seems like scare tactics in light of the pending acquisition proposal.

      E.g. this was added regarding common distributions (the second part):
      “In 2020, we reduced our quarterly cash distribution rate on our common shares to $0.01 per unit. We have maintained this distribution rate throughout 2021 and 2022 and may continue to do so for the foreseeable future; future distributions may remain at this level for an indefinite period or be eliminated entirely, which could impact our ability to raise capital.”

      And this one on LNG business:
      “These factors could have a material adverse effect on our business, results of operations, financial condition, the value of our assets, and could further reduce or eliminate our ability to pay distributions on our common or Preference Units.”

      In the previous report similar statement are also present, but not as part of summary risks.

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    • I thought the writeup had original points (not purely a copycat)…and the writeup’s main points strengthened my conclusion to hold onto my GLOP long position until 2H2023.

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  5. Highway robbery…board announced today they would accept an offer for $8.65.

    Off which, $3.28 is a special dividend paid out of existing cash on the balance sheet. They are going to scoop up 12 LNG tankers, the oldest of which has atleast 5 years of further operating life, and whose sister ship sold for $50 mil last year, for a paltry $277 million. They fleet generated $234 mil in FCF last year, this is a sweat heart deal for Blackrock.

    https://www.gaslogmlp.com/gaslog-ltd-and-gaslog-partners-lp-announce-agreement-for-the-acquisition-by-gaslog-ltd-of-gaslog-partners-lps-publicly-held-common-units/

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    • …… Wow, this sucks…. Staggering that this is legal.

      It’s there any mechanism to redress this situation or is it all over?

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      • I think we have to approve this right? Remember the GP does not own a majority of the shares.

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  6. That is indeed a disappointing outcome. This takeunder is still subject to shareholder approval. GP owns 30%, so will need another 20%. But I am guessing they know they have the votes if the bid was not lifted by more. If shareholders approve the $8.65, then there is probably no other way for pushback.

    20% of all shares is 29% of minority shares. If any activists step in, it might prove difficult to reach this threshold.

    I am holding for now to see if any of the large shareholders voice their opposition over the coming month. But I am not optimistic. The worst case scenario now seems to be 4% return in 5 months or sooner.

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  7. I think at this point the right move is sitting tight until we can see the proxy; lots of question marks surrounding both the original deal price and this new valuation and I am curious how they got to both numbers. Activism at this point seems risky due to the 4.9% voting restriction, although there is a path to remove the GP. Has anyone looked at shareholders and estimated their basis / whether they will be friendly to this?

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  8. hi. has anyone noted part of the consideration will be paid directly by the company (not the acquiror) via a special distribution ? I assume the distribution will be subject to US whithholding tax if you’re a foreign shareholder… that is on top of the deceiving price… let us know if you hear anything on the treatment of this special distribution please. tx

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    • I may be wrong but I will think distribution will be treated similar to a liquidation distribution, in which case with holding tax will only applied if the distribution is above your cost basis.

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      • If the distribution is in the form of a ‘special dividend’ it is my understanding is that it would be subject to withholding tax at a rate depending on the country of your tax residency (typically 15%, or 30% if your country does not have a tax treaty with the US).

        If it is deemed a ‘return of capital’ I assume (hope) it will not incur withholding tax, and instead you would pay capital gains tax, if applicable, in the country of your tax residency.

        I look forward to someone who actually knows providing ‘tax advice’ to non-US tax residents (but caveating it with ‘this is not tax advice’ in the customary way 😉 )

  9. Could be the risk/fear of delisting post-buyout of the commons has increased.

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    • The offer is still subject to shareholder approval and management needs 20% of votes from minority shareholders. If the word spreads and shares start trading above the buyout offer, getting these additional votes might prove difficult. So think there is a chance this could work out.

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  10. Any idea why GLOP traded lower after hours? The fact that it still trades below the take out price baffles me.

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  11. GLOP reported very strong Q1 results. Even with charter rates coming down significantly from Q4’22 peaks, the business continues to gush cash. The company generated $47.5m FCFE last quarter vs privatization offer valuing GLOP’s equity at $460m. The recent results once again highlight how undervaluing the current take-under offer is. These positive results increase the chances of more pushback from shareholders and activists, although I think the chances of shareholders rejecting the offer are minimal.

    The overall strong outlook for LNG charters this year remains unchanged. The rates seem to have stabilized at $70k+/day for spot and $155/share for 1-year TFDE rates. This is still way above the normalized levels for the seasonally weakest Q1.

    The upbeat prepared remarks in the earnings call were laughable given the company is getting stolen from the minority shareholders:

    “Overall, we are pleased with our performance in this quarter as we continue to rechartering our fleet at healthy rates with improved visibility on our 2023 cash flows.”

    As expected, there was no Q&A session in the call.

    https://www.bamsec.com/filing/110465923050658?cik=1598655
    https://www.bamsec.com/transcripts/15559397

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  12. A follow-up letter by Tourlite Capital to GLOP’s board. Notes that in the recently released proxy:
    – Evercore’s initial recommendation was a price of $10 per share and proposed it to be conditioned upon approval of the majority of the minority shareholders.
    – The $8.65/share price is below Evercore’s midpoint DCF valuation (done with punitive assumptions) and Evercore’s presented peer trading multiples.
    – Evercore’s analysis uses an outdated Q4’22 balance sheet that ignores large cash accumulation and debt reduction during Q1 2023. Evercore’s net debt figure is overstated vt $124m or $2.29/share.

    Letter: https://static1.squarespace.com/static/61a421852b6f1364f41b2553/t/64622f71cf88563f5f4e7db4/1684156273723/GLOP+Tourlite+Presentation+May+15+2023.pdf
    Proxy: https://www.bamsec.com/filing/110465923056630/2?cik=1598655
    Evercore’s presentation: https://www.bamsec.com/filing/110465923056630/8?cik=1598655

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    • GLOP has exhibited the worst corporate governance in today’s market (honorable mention to CANO). Both the process and its outcome are utterly indefensible.

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      • All these GPs probably jumped up for joy when the Delaware Supreme Court reversed the Boardwalk / Loews judgement in Dec. Evercore is the banker of choice for these special committees.

        Look at the Sisecam (SIRE) process. It’s exactly the same with the same minority shareholder cramdown. On Evercore’s numbers, SIRE’s fair value was $32/share vs the $25/share the special committee agreed to. And the special committee only got that $25 after abandoning the majority / minority vote condition.

        Trying to embarrass these GPs to do the right thing may work…but I suspect legally, they feel covered and probably don’t think they need to budge.

        Minority shareholders will need to litigate the partnership agreement – that’s going to take a lot of time and treasure. The GPs are betting that doesn’t happen and isn’t worth it for minorities.

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      • Hi Chris, will you/Rangeley be joining Tourlite in pressuring the board formally and publicly?

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  13. aviva, thank you for the note on this recent Delaware Supreme Court ruling. I was not aware of it.

    I agree that this makes a big difference for all pending/future MLP buyouts. The now-overturned Delaware Court of Chancery decision was the key precedent showing the consequences for GPs if they attempted to take the MLP private with a low-ball offer. The previous ruling had awarded $690m for minority unitholders after Boardwalk Pipeline Partners LP buyout back in 2018.

    This ruling likely reduces the likelihood of material bid improvements for GPP and HEP (although the chances of that were not high anyways) and also limits what the activists can achieve in GLOP’s setup.

    Closing GLOP on the tracking portfolio at a 2% loss.

    For those interested, more details on the ruling and background of the case here:
    https://www.engage.hoganlovells.com/knowledgeservices/news/delaware-supreme-court-reverses-us690-million-judgment-in-boardwalk-pipeline-partners/

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    • Hi DT,

      Even if activism fails, why not wait and get $8.65 if you think the deal closes?

      Reply
      • It’s only $0.1/share spread at the moment. So probably not worth the wait.

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    • Hi DT,

      I read the ruling but I am still perplexed by the closing of this idea given the vote hasn’t even occurred. Has a date even been set for the vote?

      Would you please elaborate on your interpretation of the ruling with regard to this case?

      I hope Chris DeMuth chimes in given his extensive legal experience etc.

      Reply
      • Ok, maybe I should have explained my thinking a bit better. GLOP buyout at $8.65 was quite likely to be approved by shareholders anyways even before this ruling (I am guessing the company counted the votes before announcing the improved offer). Any activist pressure has only limited chances of succeeding. I think that after this ruling the likelihood of shareholder approval has increased further, as even in the rejection scenario I do not think a higher offer from GP will be coming. What is stopping GP from parking this deal for a year and then making the offer again at the same price? Or finding some other way to overcome shareholder objection? The spread has also narrowed from the 4-5% when the improved bid was announced to only 1% today. So taking this info together, it seemed prudent to move on.

  14. It would be advantageous to sell now and take a loss rather than to get part of the return in dividend income which would be taxable right?

    Reply
    • The vote hasn’t happened to my knowledge so it isn’t like it is about to go ex-div.

      I personally do not want US dividends as they get taxed at 30% for me, but to my knowledge that isn’t imminent, and therefore I’d be inclined to wait and see if the situation improves. That said, DT knows much more and has thrown in the towel; therefore I may be holding in hope and ignorance!

      Reply
    • You are correct that the Special Distribution part of the buyout price will be partially treated as dividend. However, that will only apply to the part covered by accumulated earnings and profits, the rest will be return of capital.

      “will recognize dividend income on the Special Distribution, to the extent of the Partnership’s current accumulated earnings and profits, as determined under U.S. federal income tax purposes. Receipt of the Special Distribution to the extent in excess of the Partnership’s earnings and profits will be treated first as a nontaxable return of capital”

      If I am calculating correctly, approximately half of the special distribution will be treated as dividend income.

      But as G98 says, the vote has not happened yet.

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  15. G98 asked “Hi Chris, will you/Rangeley be joining Tourlite in pressuring the board formally and publicly?” No, not formally; just a matter of opportunity cost and other situations that we’re focused on but I agree with Tourlite’s thesis 100%. Their work essentially parallels ours in terms of value and the utter corruption of the process. It is the worst governance abuse in today’s public markets. $12 is fair; $10 is marginally tolerable; the current deal is obscene.

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  16. Thank you for responding, it is much appreciated.

    In light of DTs comments, and given your recent write up on Seeking Alpha, what makes you believe that this deal will get done at $10+ (which I assume is the basis of your long position)?

    Reply
    • G98 — not sure you characterize my belief the way I would. If I were to describe it, I would replace “will” with “should” and the reasons for “should” are as described in my article.

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  17. Has a date been set for the vote? (If so I haven’t received any votes instructions from my broker as yet. )

    Reply
  18. According to Bloomberg Cobas AM (holds 6.2% stake ) will vote against the proposal as it does not recognise it’s full value.

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    Reply
    • Here’s the original source from Cobas’ blog page. Translating from Spanish (Google translate):

      In recent months we have received several takeover bids for companies present in our portfolios.

      At the beginning of January, a takeover bid for Gaslog, a liquefied natural gas maritime transport company, to which we have no intention of going, hoping to receive a more attractive price, since it is still far from its target value.

      https://www.cobasam.com/blog/generando-valor/

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  19. The vote is today. Just to be clear in the event that it is voted against does that mean the dividend of 3.28 will not be paid? The ex date is the 13th and I really don’t want to eat the tax on the dividend one way or another.

    Reply
    • Shareholders have voted FOR the acquisition. Seems like 35% of unaffiliated shareholders (excluding stake owned by GP) were against the offer and a large part of shareholders did not participate in the vote at all.

      The transaction is expected to close on or about July 13.

      Reply

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