Overseas Shipholding Group Acquisition
Updated October 2021
Background
On July 2, 2021 Overseas Shipholding Group (OSG) received a non-binding acquisition proposal. The company also announced that it would be exploring additional strategic alternatives in light of the acquisition bid as well.
Buyout Offer ($3.00 per share)
OSG received an offer from Saltchuk Holdings to acquire all of it’s outstanding shares for $3 per share in cash. Saltchuk is the largest family owned business in Washington state, posting revenues over 2 billion in 2016, from it’s six lines of business in industries that include marine shipping, air cargo and energy distribution. After receiving the offer, the OSG board reported that they would be considering the acquisition offered by Saltchuk but would also seek out strategic alternatives to enhance shareholder value. The market responded in kind as shares rose 37% on the news.
Based on OSG’s balance sheet and the markets’ response to the acquisition news, it’s likely the board will accept the Saltchuk offer if another offer is not presented in the coming weeks that puts forth greater shareholder value.
Prior to the acquisition announcement, OSG shares closed on July 1, 2021 at a value of $2.10.
Saltchuk Rescinds Offer
September 7, 2021, Saltchuk Holdings announced that it had ended discussions regarding a potential acquisition for Overseas Shipholding Group. The company stated that it would continue to explore strategic alternatives in lieu of the Saltchuk announcement. On the news, OSG shares fell nearly 20%.
On October 4, 2021, the company announced that it closed on a seven-year $325 million term loan credit facility with Stonebriar Commercial Finance. Proceeds were used to refinance and replace its existing term loan facility as well as the partial refinancing of a term loan. The remaining proceeds, after transaction costs, will be used for general working capital purposes.
Overseas Shipholding Group Company Overview
OSG is a micro-cap tanker company based in Tampa, FL that provides energy transportation services for crude oil and petroleum products in the US Jones Act market. If you’re unfamiliar with the Jones Act (which most people are unless they actually work in the maritime industry), it’s a law that requires all vessels carrying goods between two U.S. points be American built, owned, crewed and flagged. The maritime shipping industry is pretty strict in terms of who can actually deliver goods to US ports which is great for companies like OSG. In an industry where the barrier to entry is pretty high, prices are likely to remain competitive and international competition is all but eliminated.
OSG has a fleet of 22 vessels, two of which participate in the US Maritime Security Program (this is a military program that pays companies for setting aside ships that can be used during crucial periods, such as national emergencies). The company primarily derives its revenue in two ways: 1) from time charter agreements for specific periods of time at fixed daily amounts and 2) from chartering out vessels for voyages, where they earn freight revenue at spot market rates.