GLOP - GasLog Partners Agrees To Be Acquired By Parent GasLog On The Cheap

2023-04-07 11:24:03 ET

Summary

• GasLog Partners agrees to be acquired by parent GasLog Ltd. for a total cash consideration of $8.65 per common unit.
• While an increase of approximately 12% from the initial offer, the purchase price remains a far cry from estimated net asset value and even way below my rather muted expectations.
• With the parent owning 30.2% of the common units and many new unitholders sitting on decent gains, GasLog has a reasonable chance to gain approval.
• That said, this is not a done deal by any means. Investors should vote against the proposed transaction and demand better terms.
• While the company's Preference Units are expected to remain listed on the NYSE for the time being, investors should be wary of a potential delisting at some point going forward.

A little over two months ago, I discussed parent GasLog Ltd.'s ( GLOG.PA ) or "GasLog" unsolicited, non-binding buyout proposal to acquire all of the outstanding common units of LNG carrier operator GasLog Partners LP ( GLOP ) not already beneficially owned by GasLog for $7.70 in cash.

Like most limited shipping partnerships, GasLog Partners was established to fund parent and general partner GasLog Ltd., but after cutting distributions all the way down to $0.01 per common unit in recent years, the company lost its ability to refinance vessel dropdowns in the equity markets.

Two years ago, parent GasLog Ltd. went private in a transaction engineered by the controlling Livanos family and supported by a division of BlackRock Inc. ( BLK ).

Since that time, Russia's assault on Ukraine has altered market conditions in favor of LNG carrier owners, with spot rates temporarily soaring to $450,000 in October.

While spot rates have come down considerably alongside natural gas prices in recent months, the long-term charter market continues to exhibit relative strength.

Given the company's strong contracted cash flows, estimated net asset value ("NAV") around $15 and persistent market tailwinds, I wasn't exactly surprised to see the parent making a move for the partnership, particularly after peer Hoegh LNG recently succeeded in taking private Hoegh LNG Partners ( OTC:HMLPF ) at a rather moderate price tag.

That said, in contrast to Hoegh LNG, GasLog only holds a 33.2% equity interest in the partnership (including general partner units), which I considered insufficient to achieve approval of the proposed transaction without the parent sweetening its offer in a meaningful way:

While the common unitholder base has likely shifted from income-oriented to more speculative investors in recent years, I fully expect the conflicts committee to negotiate substantially improved deal terms that should result in a buyout price of at least $10 per common unit, which would still represent a major bargain for the parent.

In late March, CBD Financial Leasing reportedly entered into sale-and-leaseback agreements for two LNG carriers with an aggregate volume of $284 million. The parent and GasLog Partners each contributed one LNG carrier to the deal thus generating substantial cash proceeds ahead of a potential merger announcement.

After the close of Thursday's session, GasLog Partners indeed announced an agreement to be acquired by GasLog for $8.65 in cash (emphasis added by author):

(...)

GasLog will acquire the outstanding common units of the Partnership not beneficially owned by GasLog for overall consideration of $8.65 per common unit in cash, consisting in part of a special distribution by the Partnership of $3.28 per common unit in cash that will be distributed to the Partnership’s unitholders in connection with the closing of the Transaction and the remainder to be paid by GasLog as merger consideration at the closing of the Transaction. (...)

The Transaction is expected to close by the end of the third quarter of 2023 , subject to approval of the Transaction by holders of a majority of the common units of the Partnership and the satisfaction of certain customary closing conditions. GasLog owns 30.2% of the common units of the Partnership and has entered into a support agreement with the Partnership committing to vote its common units in favor of the merger.

The preference units of the Partnership will remain outstanding and continue to trade on the New York Stock Exchange immediately following the completion of the Transaction. (..)

While the cash consideration for common unitholders was raised by 12.3% from the initial offer, this is apparently a far cry from the company's estimated net asset value and still nowhere near my rather muted expectations of a final buyout price between $10 and $11 per common unit.

Unfortunately, despite GasLog only owning 30.2% of the common units, there's a decent chance for the deal to be approved as the unitholder base has changed in recent years with the vast majority of new equity holders likely sitting on decent gains. Even underwater legacy unitholders might vote for the deal given the ongoing lack of meaningful distributions and recent unit price recovery.

Should large institutional unitholders like Cobas Asset Management or Invesco vote for the transaction, GasLog would only need a small minority of retail investors approving the merger to succeed.

That said, this is not a done deal by any means as both institutional and retail investors might very well decide to vote against the transaction and demand a higher price.

Please note that the company's Preference Units ( GLOP.PA , GLOP.PB , GLOP.PC ) will remain outstanding and are expected to continue to trade on the NYSE for the time being but there's nothing that would prevent GasLog from delisting the units at some point going forward like Hoegh LNG recently did with Hoegh LNG Partners' preferred units.

On the flip side, $87.4 million of the company's 8.20% Series B Preference Units recently became callable and with the distribution rate having changed to LIBOR +5.839%, there's still a chance of the partnership exercising its right to redeem the units at par following its acquisition by GasLog.

Bottom Line

Hopefully, parent GasLog's move to take out GasLog Partners on the cheap will be voted down by a majority of common unitholders but, admittedly, GasLog has a decent chance to indeed grab the subsidiary at a bargain price.

In addition, Considering the recent fate of peer Hoegh LNG Partners preferred units, holders of GasLog Partners' Preference Units should remain wary of a potential delisting going forward.

For further details see: