NMM - Navios Maritime Holdings: Buyout Offer Unlikely To Be Raised Materially But Upgrading To Hold

2023-09-14 02:38:07 ET

Summary

• Controlling shareholder Angeliki Frangou submits a non-binding buyout proposal to acquire the company for $1.84 in cash per common share.
• With Ms. Frangou controlling almost 65% of the voting rights, outside shareholders will have to hope for the company's Special Committee to negotiate a better price.
• Based on my net asset value estimates, I wouldn't bet on the offer being increased materially or at all.
• In addition, I do not expect the company's outstanding Series G and Series H Cumulative Preferred Shares to be redeemed upon consummation of the proposed transaction.
• However, with Ms. Frangou's proposal likely to put a floor under the stock price until a final agreement has been negotiated, I am raising my rating on the common shares from "Sell" to "Hold".

Note:

I have covered Navios Maritime Holdings ( NM , NM.PG , NM.PH ) previously, so investors should view this as an update to my earlier articles on the company.

Following the sale of its dry bulk carrier fleet to former subsidiary Navios Maritime Partners ( NMM ) or "Navios Partners" as part of a massive bailout package last year, Navios Maritime Holdings or "Navios Holdings" has been left with two major assets:

1. A 10.3% equity stake in Navios Partners that is accounted for under the equity method with a current value of approximately $69 million.
2. A 63.8% equity stake in consolidated entity Navios South American Logistics or "Navios Logistics".

The company also holds some incentive distribution rights ("IDRs") related to Navios Partners which remain far out of the money:

Last month, Navios Holdings reported profitable second quarter results which benefited from sequential top- and bottom line improvements at Navios Logistics and the contribution from Navios Partners:

While Navios Logistics contributed $32.5 million in Adjusted EBITDA in Q2, the company has close to $550 million in debt principal outstanding with $500 million in 10.75% Senior Secured Notes scheduled to mature on July 1, 2025.

However, with the company's port terminal operations currently benefiting from vastly increased iron ore transshipments and recent improvements in the barge business, I have raised my Adjusted EBITDA expectation for this year from $110 million to $140 million and assigned a $100 million value to Navios Holdings 63.8% stake in Navios Logistics based on an Adjusted EBITDA multiple of 5x.

But even under my revised assumptions for Navios Logistics, net asset value ("NAV") attributable to Navios Holdings' common shareholders remains in negative territory:

Please note that the terms of last year's bailout agreement have resulted in Navios Shipmanagement Holdings Corporation or "Navios Management", a private entity controlled by the company's CEO and Chairwoman Angeliki Frangou, having accumulated more than $120 million in convertible debentures which are convertible into common stock at a conversion price of $3.93 per common share.

On Wednesday, N Shipmanagement Acquisition Corp. or "NSM", another private entity affiliated with Ms. Frangou submitted a non-binding offer for Navios Holdings (emphasis added by author):

On behalf of N Shipmanagement Acquisition Corp. (...), we are pleased to propose a transaction pursuant to which Navios Maritime Holdings Inc. would be merged with an affiliate of the offeror , which would result in all of the outstanding shares of common stock (...) which are not beneficially owned by us and our affiliates, being converted into the right to receive $1.84 in cash per share . (...)

The offeror, an affiliate of Angeliki Frangou, Ms. Frangou and her other affiliates beneficially own approximately 64.7% of the outstanding shares of common stock . In considering this proposal, you should know that in our capacity as company stockholders, we only are interested in acquiring the shares of common stock not already owned by us and our affiliates and that, in such capacity, we have no interest in selling any of our equity interest in the company nor would we expect, in our capacity as company stockholders, to vote in favor of any alternative sale, merger, or similar transaction involving the company .

Navios Holdings confirmed the unsolicited proposal in a press release (emphasis added by author):

Navios Maritime Holdings Inc. (...) today announced that its board of directors received an unsolicited non-binding proposal from N Shipmanagement Acquisition Corp. ("NSC") to acquire all of the outstanding shares not already beneficially owned by NSC and its affiliates for $1.84 in cash per common share.

The Company's board of directors has authorized a Special Committee, consisting solely of independent and disinterested directors, to retain advisors and to review, evaluate, negotiate and accept or reject the proposed transaction . The proposal is non-binding and is subject to the negotiation and execution of mutually acceptable definitive documentation. There can be no assurance that any definitive documentation will be executed or that any transaction will materialize.

Considering Ms. Frangou's ability to vote her stake in the company on an as-converted basis, Navios Holdings outside shareholders will have to hope for the Special Committee to negotiate a better price.

Quite frankly, given my net asset value estimate above, I wouldn't bet on the offer being increased materially or at all.

In addition, based on the certificate of designation , I do not expect the company's outstanding Series G and Series H Cumulative Preferred Shares ( NM.PG , NM.PH ) to be redeemed (including undeclared dividends) upon consummation of the proposed transaction.

Bottom Line:

Apparently, Angeliki Frangou is seeing some value in Navios Maritime Holdings otherwise she wouldn't make a move for the company.

Given her ability to vote on the transaction on an as-converted basis, outside shareholders will have to hope for the Special Committee to negotiate a better price.

At this point, I wouldn't bet on the offer being increased materially or at all and with common shares already above the offering price, I would abstain from chasing the shares at current levels.

However, with Ms. Frangou's proposal likely to put a floor under the stock price until a final agreement has been negotiated, I am raising my rating on the shares from " Sell " to " Hold ".

For further details see: