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Danaos Expresses ‘Serious Concern’ Over Eagle Bulk’s Repurchase of Oaktree Shares and Use of ‘Poison Pill’

Mike Schuler
Total Views: 1879
June 27, 2023

Danaos Corporation (NYSE:DAC), one of the world’s largest independent owners of containerships and the largest shareholder of Eagle Bulk Shipping (NYSE:EGLE), has issued a letter to Eagle Bulk’s Board of Directors expressing “serious concern” over the company’s debt-financed repurchase of Oaktree Capital’s entire stake in the dry bulk shipping company and instituting of a “poison pill.”

The letter comes in response to Eagle Bulk’s announcement that it intends to repurchase approximately 3.8 million shares of Eagle’s common stock from Oaktree for approximately $219.3 million, representing Oaktree’s entire 28% stake in Eagle Bulk. Eagle Bulk’s Board of Directors have also adopted a shareholder rights plan to prevent any person or group from gaining control of the company.

Danaos owns approximately 16.7% of Eagle Bulk’s outstanding shares after the deal, representing an increase from the approximately 11.3% stake Danaos recently purchased in open market transactions.

Eagle Bulk’s announcement on the repurchase said the purchase price of $58.00 per share represented a premium of approximately $11 per share from Eagle Bulk’s closing price on the day of the announcement and approximately 16% to Net Asset Value based on March 31, 2023 financials and current fleet valuations.

A “shareholder rights plan”, known in investing as a “Poison Pill”, is a defense strategy used by public companies to prevent others from taking control of the company by buying up large amounts of its stock.

In its letter, Danaos said it had approached Eagle Bulk’s management prior to making its initial investment and informed them that the investment would be made in the open market and that corporate governance was a key consideration.

Danaos’ letter expressed concern about the fairness of the repurchase price, specifically the “35% premium to [Eagle Bulk’s] 45-day average share price” and the Board’s decision to “adopt a poison pill without seeking prior shareholder approval.”

“It goes without saying, these transactions fundamentally alter the makeup of the Company,” the letter states.

The letter also raises concern about the preferential treatment afforded to Oaktree, and the potential financial risk to remaining shareholders, while also questioning the effectiveness of the “poison pill” and its impact on shareholder communication.

“As Eagle Bulk’s current largest shareholder, we have a strong vested interest in seeing the Company enhance long-term shareholder value and believe that we have a duty to speak up when we think the Board and/or management may be acting outside the best interests of all shareholders,” Danaos’s said in its letter.

Oaktree became a shareholder in Eagle Bulk in October 2014.

So far, Eagle Bulk has yet to respond to the letter.

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