2023-06-16 15:22:32 ET
Summary
- Eneti and Cadeler announce a proposed all-stock business combination, creating a leading offshore wind player with strong synergy potential and substantial future earnings power.
- Technically, Cadeler will be acquiring Eneti with shareholders being offered 3.409 Cadeler shares for each Eneti share.
- Exchange offer is expected to launch in the third or fourth quarter, with the closing date anticipated for Q4.
- With the transaction still subject to shareholder- and regulatory approvals as well as the requirement for at least 85.01% of Eneti's outstanding shares being tendered, I would expect the current 20%+ discount to the calculated tender offer price to persist for the time being as market participants discount the risk of the deal falling through.
- At least in my opinion, there's a strong strategic rationale for the proposed combination of Cadeler and Eneti. I would advise Eneti investors to vote for the transaction and tender their shares in the upcoming tender offer.
Note:
I have covered Eneti Inc. ( NETI ) previously, so investors should view this as an update to my earlier articles on the company.
Eneti/Cadeler Merger:
On Friday, shares of junior Wind Turbine Installation Vessel ("WTIV") operator Eneti Inc. or "Eneti" rallied to new 52-week highs following surprise news of a proposed combination with Denmark-based competitor Cadeler A/S ("Cadeler") in an all-stock transaction (emphasis added by author):
Cadeler A/S (OSE: CADLR) and Eneti Inc., two offshore wind turbine and foundation installation companies, announce today that they have entered into a business combination agreement to combine through a stock-for-stock exchange offer to be made to all stockholders of Eneti based on an exchange ratio of 3.409 Cadeler shares for each Eneti share .
Following the completion of the Exchange Offer, Cadeler and Eneti shareholders will own approximately 60% and 40% of the combined company , respectively, on the basis of the share counts for each of Cadeler and Eneti as at 16 June 2023 and assuming all outstanding Eneti shares are exchanged for Cadeler shares in the Exchange Offer.
The combined group will be named Cadeler, and be headquartered in Copenhagen, Denmark, with its shares to be listed on the New York Stock Exchange (“ NYSE ”) in addition to its current listing on the Oslo Stock Exchange (“ OSE ”). (...)
The Combination will position Cadeler as a robust and reliable player in the market with a true global presence through scale, a complementary fleet, and deep industry relationships. The Combination will enable the combined company to operate more efficiently, and target still larger and more complex projects as requested by customers. (...)
The transaction is expected to deliver more than €100 million in annual run rate synergies:
While cost synergies are expected to be frontloaded, utilization synergies will mostly apply to the combined company's newbuilds with initial deliveries expected in H2/2024.
Please note that projected synergies do not account for more than $60 million in " transaction and change of control costs ".
Hopefully, the deal is not going to result in another massive payday for Eneti's management, similar to the $30 million pocketed by a number of senior executives upon the acquisition of Seajacks in 2021.
With a whopping $1.5 billion in remaining capital expenditures for the six vessels currently under construction, Cadeler will increase available debt facilities and has secured commitments for a comprehensive refinancing of existing long-term debt obligations at " attractive " terms.
Upon delivery of the six vessels under construction and disposition of three, smaller legacy NG 2500X class WTIVs, the combined company will own a fleet of ten " modern, capable, and complementary vessel s".
The company expects the effective operational homogeneity of the fleet to allow for substitution opportunities and increased vessel utilization.
Once the newbuilds are fully delivered, Cadeler will be the leading offshore wind player with more than 20% market share:
The transaction is supported by Cadeler's (45%) and Eneti's (36%) largest shareholders, thus substantially increasing the probability of the deal being approved by equity holders.
Cadeler expects to launch an exchange offer for Eneti's outstanding shares in the third or fourth quarter, with the transaction expected to close before year-end.
Current Eneti shareholders will receive Cadeler ADRs, which will be listed on the NYSE upon closing of the transaction.
As usual, the combination remains subject to a number of customary closing conditions, including the requirement of at least 85.01% of Eneti's outstanding shares being tendered to facilitate a squeeze-out of remaining Eneti shareholders subsequent to the close of the deal.
At least in my opinion, the strategic rationale behind the transaction is very strong, with a decent combination of synergies and reduced competition.
In addition, the proposed transaction derisks the investment thesis for Eneti shareholders quite meaningfully as Cadeler's backlog (including options) is more than 6x higher than Eneti's with revenue visibility until 2031.
While it will take until at least 2026 for the combined company's earnings power to fully unfold, profitability should increase substantially already going into 2025 with the first newbuild vessels expected to commence operations by that time:
Bottom Line:
At least in my opinion, there's a strong strategic rationale for the proposed merger of Cadeler and Eneti as the combined company will become the world's leading offshore wind player, benefiting from strong synergy potential and reduced competition.
In addition, the proposed transaction derisks the investment thesis for Eneti shareholders quite meaningfully, as the new Cadeler will be a financially stronger entity with improved access to capital.
Technically, Cadeler is acquiring Eneti with remaining Eneti shareholders expected to be squeezed-out following the close of the deal.
With the merger not expected to close before Q4 and the transaction still subject to shareholder- and regulatory approvals as well as the requirement for at least 85.01% of Eneti's outstanding shares being tendered, I would expect the current 20%+ discount to the calculated tender offer price to persist for the time being as market participants discount the risk of the deal falling through.
Given the above discussed transaction benefits, I would strongly advise Eneti shareholders vote for the proposed acquisition by Cadeler and tender their shares in the upcoming offer.
For further details see:
Strong Strategic Rationale Behind Eneti's Proposed Combination With Cadeler - Buy