LONDON, May 30, 2019 /PRNewswire/ -- Following private equity company Brookfield Business Partners' bid to purchase the remaining publically-held shares of offshore oil production services company Teekay Offshore (TOO), the Managing Partner of Noster Capital LLP, Pedro de Noronha is rejecting their 'low' offer.
In the following letter, Pedro de Noronha writes:
As you may know, last week, Brookfield Business Partners (BBU) made an unsolicited, and in our view, an unwelcome offer to acquire all of the publicly held common units of TOO that it does not already own. The offering price of $1.05 is an all-time low for TOO. As explained below, in our opinion, tendering shares to BBU is the worst option for current minority shareholders.
It is our opinion that it is best for minority investors to be well informed about this process, which is often complicated. BBU owns 73.3% of the units of TOO. If they get to 80%, they have the right to buy the remaining 20% in a "Call Right."
The full Call Right explanation can be found in this document, on page S-78:
https://www.sec.gov/Archives/edgar/data/1382298/000119312518012093/d493270d424b5.htm
Once BBU attains 80% of the company shares, they will have the option to set the price at which minority holders will be forced to sell. That will follow a formula as explained below:
The unit offer price will be the higher of:
(i) the average of the closing prices of the last 20 trading days preceding 3 days before giving notice of the squeeze out, or
(ii) the highest price per unit paid by BBU or any of their affiliates in the 90 days that precedes them giving us notice.
Helping fellow minority unitholders evaluate likely outcomes:
1) We will only receive $1.05 per unit if we tender our units to BBU. They are probably hoping that some unitholders tender to them blindly when (if) the tender offer starts. In tenders like this, some people accept the official tender offer without bothering to see that the actual market price is higher.
2) It is our opinion that the intelligent decision at this point is to not tender. By not tendering, it increases the odds that BBU will have to improve their price in order to acquire the remaining percentage required to reach the 80% threshold. BBU may have to increase their offer by a very substantial amount as the current offer values the company at a 75% discount of what we estimate it to be worth.
3) BBU might choose to buy the needed units outright in the market. But attempting to buy 6.7% or 27 million shares in the open market at current very low daily liquidity would likely result in a much higher price than BBU's $1.05 bid. That is why we are of the opinion that it is unwise to sell units of TOO in the open market, at current prices. If BBU begins to buy units in the market, they must make an announcement within 2 days of each 1% unitholding increment they achieve.
4) If BBU abandons their take-private offer, we believe the units would trade up. The units are trading at slightly over one dollar. As per our own extensive model on TOO based on its contracted cashflow and reviewed on a call with the company, we estimate that each unit is worth well in excess of $4 per unit.
Many of TOO's current unitholders bought into TOO because they liked the fact that Brookfield had become involved and would add their expertise and creditworthiness to achieve superior returns. Since BBU's involvement with TOO, there have only been positive news: the balance sheet has been stabilised, orderbook projects added $200 million in annual cash flow, new shuttle tanker orders were placed for growth, the Petrobras dispute was resolved amicably, debt maturities were extended by years, and TOO's management executed new export credit facility at incredibly attractive terms.
But BBU never publicly committed to protecting minority unitholders' interests nor helped to sell TOO's improving equity story. In addition, TOO management created more uncertainty by de-emphasising investor relations and poorly explaining company progress as time went on. As a result, TOO's price has de-correlated from peers and units were cut in half.
We are not tendering our units of TOO. If BBU fails to get to 80% ownership before TOO's second quarter reporting in early August, we believe that the upcoming quarter's reporting and analyst Q&A will help further demonstrate a balance sheet and cash flow that defends a much higher valuation.
Sincerely yours,
Pedro de Noronha
Managing Partner
Noster Capital LLP
About Noster Capital LLP
Noster Capital LLP is a London based hedge fund founded in 2008. It invests globally pursuing a value based investment approach.
Contacts: Andrew Sutherland, +44(0)203-585-1232, info@nostercapital.com
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SOURCE Noster Capital LLP
