Charles Fabrikant, a founding shareholder in Dorian LPG, has broken his silence on the company’s ongoing takeover battle with BW LPG and voiced his support for combining the two firms.
Fabrikant’s Seacor co-invested in newbuildings with Dorian back in 2013 and remained a major shareholder following its listings on the Oslo over the counter market and the New York Stock Exchange.
Seacor, which owns 9.4% of Dorian LPG today, is the largest investor to speak in favour of combining the world’s two largest VLGC owners and its move comes within days of BW LPG upping its offer.
Dorian’s board, which has previously rejected BW LPG’s advances, contains Oivind Lorentzen, who was chief executive of Seacor when it first co-invested with Dorian but who left the post in 2015.
Consolidation always in Seacor's plan
In an open letter released after the close of US trading on Friday, Seacor chairman Fabrikant said he felt it appropriate to speak up after Dorian stated no large shareholder had expressed support for BW LPG’s proposal.
“Our support for a combination of Dorian and BW harks back to one of the reasons we decided to invest in the gas sector, our belief that niche markets can be consolidated and that consolidation befits the participants,” Fabrikant wrote.
He notes that soon after its investment with Dorian, Seacor supported its purchase of a series of VLGCs from another company.
While not named, the other party was Scorpio Tankers, which co-incidentally later sold a slice of its Dorian shares to BW Group, allowing Andreas Sohmen-Pao to buy into the takeover target.
“Our hope was that the combination would be the first step in addressing the potential supply problem arising from too many investor groups ordering too many VLGC,” Fabrikant’s letter continued.
He said the question at hand was whether the combination of the two leading players in the market would improve results for their owners. “To paraphrase an adage, ‘markets help those who help themselves',” the Seacor chairman continued.
Drawing on experience
Fabrikant drew parallels between the VLGC order spree of a few years ago and those seen in the US inland barge and offhore support vessel sectors back in the 1980s.
“I saw both sectors struggle until consolidation got underway,” he said, noting that the participants and ultimately the wider sectors benefited from the marger and acquisition activity which took place.
“The dynamics in both of these niche markets reacted most favourably after two of the industry leaders combined,” he said.
“Combinations result in reduced overheads and typically also deliver some savings in operational expenses.
"A larger inventory of assets also affords management more marketing flexibility in both good and bad markets.
“Like Tidewater and Zapata both Dorian and BW have 'mass,' but combined their asset base and marker position would be more significant,” Fabrikant argued.
He said Dorian’s board had done part of its job in securing a higher offer. But he added net asset value was a theoretical value and the pertinent issue for Dorian shareholders was whether a combination would result in sufficiently better value realization.
Having secured the higher bid, Fabrikant called for Dorian’s directors to think more expansively.
“Looking to the future, assuming good operational stewardship in a combined entity, I believe the value for a Dorian shareholder’s stake will be enhanced if the two businesses were to combine," he said.
The letter also dismissed Dorian's counter to buy BW LPG's eco ships as “unwise” and said diversity in the age of a fleet was not a liability.
“Older vessels are often suited to some jobs such as storage, short voyages, or trades that involve extended times in port,” he said.
“Both Dorian and BW are run by talented people who are experienced investors.
"A transaction resulting in a combination with an open-minded, independent board, resolved to retain the best of the best, would deliver a better outcome for owners than Dorian going its own way,” Fabrikant said.
A spokesperson for Dorian said: “We appreciate input from all our shareholders, but until our board responds to BW’s latest proposal we cannot say more.”
Seacor has joined Metropolitan Capital Advisors, Oppenheimer + Close and Robotti & Co and Sissener in expressing a positive public opinion on the merger.
Dorian’s board, whose members are beneficial owners of more than 25% of its stock, unanimously rejected the first BW offer but have yet to respond to its increased bid.
