Danaos Corporation (NYSE:DAC), one of the world’s largest independent owners of container ships and the largest shareholder in Eagle Bulk Shipping (NYSE:EGLE), has completed an offering a letter to Eagle Bulk’s board of directors, expressing his “serious concern” about the company’s debt-financed buyback of Oaktree Capital’s entire stake in the bulk carrier and the introduction of a “poison pill.”
The letter is in response to Eagle Bulk’s announcement that it would repurchase approximately 3.8 million shares of Eagle common stock from Oaktree for approximately $219.3 million, representing Oaktree’s entire 28% interest in Eagle Bulk. Eagle Bulk’s Board of Directors has also adopted a Shareholder Rights Plan to prevent any person or group from gaining control of the company.
Danaos will own approximately 16.7% of Eagle Bulk’s outstanding shares following the transaction, an increase from the approximately 11.3% interest that Danaos acquired in recent open market transactions.
Eagle Bulk’s announcement of the buyback stated that the purchase price of $58.00 per share represented a premium of approximately $11 per share to Eagle Bulk’s closing price on the day of the announcement and approximately 16% to Net Asset Value , based on financial data and current data as of March 31, 2023 fleet ratings.
A “shareholder rights plan,” also known as a “poison pill” in investing, is a defense strategy used by publicly traded companies to prevent others from taking control of the company by buying up large amounts of its stock.
In his letter, Danaos said that prior to the initial investment, Eagle Bulk’s management was approached and told that the investment would be made in the open market and that corporate governance was a key consideration.
Danaos’ letter raised concerns about the fairness of the buyback price, specifically the “35% premium to the 45-day moving average of (Eagle Bulk)’s stock price” and the board’s decision to “introduce a poison pill without to obtain the approval of the shareholders beforehand”.
“It goes without saying that these transactions fundamentally change the composition of the company,” the letter reads.
The letter also raises concerns about the preferential treatment being afforded to Oaktree and the potential financial risk to remaining shareholders, but also questions the effectiveness of the “poison pill” and its impact on shareholder communications.
“As the current largest shareholder of Eagle Bulk, we have a vested interest in the Company enhancing long-term shareholder value and believe we have a duty to speak up when we believe the Board and/or management possibly acting outside the best interests of all shareholders,” Danaos’s said in its letter.
Oaktree became a shareholder in Eagle Bulk in October 2014.
To date, Eagle Bulk has not responded to the letter.