in International Shipping News 18/12/2023

Star Bulk Carriers (SBLK) and Eagle Bulk Carriers (EGLE) have announced an agreement to merge in an all-stock deal. The stock transaction will happen on a NAV-to-NAV basis, resulting in a proforma market capitalisation of USD 2.1bn (as of 08 December). Eagle Bulk shareholders will receive 2.6211 Star Bulk shares per share of Eagle, representing a consideration of USD 52.60 per share, a 17% premium to Eagle Bulk’s closing share price on 08 December 2023. Since the merger announcement, Eagle Bulk’s share price has surged 15.4%. Star Bulk and Eagle Bulk shareholders will own 71% and 29% respectively of the new entity on a fully diluted basis. The merger is expected to close in 1H24, subject to Eagle Bulk shareholder approval, regulatory approvals and customary closing conditions.

The combined company would have 169 vessels under its fleet of which ~97% would be scrubber-fitted. The current CEO of Star Bulk will head the combined company while Spyros Capralos will serve as the Chairman and one Eagle director will join the Board of the combined company.

Star Bulk Carrier’s stock outperforms the Drewry Dry Bulk Equity Index
The share price of Star Bulk declined 7.8% in 1H23, outperforming the Drewry Dry Bulk Equity Index (-13.4%) but underperforming Eagle Bulk (-3.8%). However, since then, the stock has changed its trajectory, increasing 4.5% before the merger news. This change in direction was not noticeable in Eagle Bulk because its stock was down 10.2% before the merger news. As of 13 December, Star Bulk stock is up 3.2% YTD, outperforming the Drewry Dry Bulk Equity Index (-14.6%) but underperforming the Eagle Bulk (4.5%).

Expansion through acquisitions
Star Bulk Carriers Corp. has strategically leveraged inorganic growth to fuel its expansion. This approach has significantly increased the company’s fleet size and operational capacity over the years, with 10 acquisitions since 2014.

A pivotal moment in Star Bulk’s inorganic expansion was in 2014 when the company procured 35 vessels from Excel Maritime and an additional 41 vessels through a merger with Ocean Bulk Shipping LLC. Smaller vessel acquisitions from various companies complemented this substantial acquisition within a single year. These include Songa Bulk AS (15 vessels), Augustea Atlantic and York Capital (16 vessels), Ocean Bulk Carriers (3 vessels), E.R. Capital Holdings (3 vessels) in 2018, Delphin Shipping (11 vessels) in 2019, and E.R. Capital Holdings (3 vessels) and Scorpio Bulker (7 vessels) in 2021.

By merging with Eagle Bulk Carriers, SBLK is adding 52 vessels averaging 10 years to its fleet. Star Bulk reiterated during the Eagle Bulk conference call that the company is not done with acquisition to fuel its growth; however, it needs time to digest this merger.

Supramax vessel prices on the uptrend
The price of a 5-year-old Supramax vessel has increased by about 6% in 2023, but it is still 8% below the highest price ever in March 2023. Since August this year, the second-hand price of 5-year-old Supramax has increased by about 8%.

What does this acquisition mean for the shareholders?
We believe the transaction is a win-win situation for all shareholders. While Eagle Bulk shareholders will benefit from increased liquidity in trading of shares as it will become part of a bigger company, Star Bulk shareholders will gain from the additional 52 Supramax vessels which will increase the fleet to 169, of which 97% is scrubber-fitted. Acquiring such a fleet is a huge advantage at a time when slot availability at shipyards is limited and a new vessel ordered today will be delivered only in 2026.

The combined company’s shareholders will also benefit from the revenue and cost synergies due to increased operational efficiencies and economies of scale, which will eliminate overlapping functions. The company expects to generate USD 50mn in cost and revenue synergies within 12-18 months post closure of this merger.
Source: Drewry