Gulf Marine Services rejects takeover approach from shareholder Seafox

The company described the offer from Seafox International as 'wholly opportunistic'

A takeover offer by its shareholder valued the company at $31.54m. Mona Al Marzooqi / The National

Abu Dhabi-based Gulf Marine Services rejected a takeover approach from its shareholder Seafox International, arguing that the offer of $0.09 per share announced last Thursday was "wholly opportunistic" and undervalued the business.

The company said the offer had been made "at a time of significant macro uncertainty" caused by the Covid-19 outbreak which had depressed share prices globally, including its own.

The offer, which values the company at $31.54 million (Dh115.8m), "fails to reflect the significant operational and financial progress made over the last 12 months and GMS's materially improved long-term prospects", it said in a statement on Monday.

"The company is performing well notwithstanding the difficult environment; we have reduced costs and we will continue to reduce them further in 2020," executive chairman Tim Summers said.

On Friday, London-listed GMS reported its losses had widened to $85.5m for 2019, up from $5.1m last year. However, $59.1m of this was due to asset impairments on its fleet, with $5m being set aside for an older vessel that was scrapped, Mr Summers told The National. Revenue fell 11.8 per cent to $108.7m.

“The most important thing is, I think, ebitda delivery, that was just higher than the guidance we gave last year. In the context of a difficult marketplace it’s a very solid set of results,” he argued.

The company’s earnings before interest, tax, depreciation and amortisation stood at $51.4m, compared to $58m in the prior year, but 2019 was a year of transformation for the company that saw its former board and management replaced, a major cost-cutting exercise being launched and a renegotiation of its bank debts following a breach of its covenants in late 2018.

A new deal with lenders agreed at the end of March, extends the company’s existing debts of almost $400m and provides up to $50m of working capital. Legal documentation is still being finalised, but is expected to complete by the end of June, Mr Summers said.

“The first quarter of this year was slightly better than our business plan and 83 per cent of our planned revenues for 2020 are covered under existing contracts,” Mr Summers said.

However, in a follow-up statement on Monday, Seafox International - which holds a 13.7 per cent stake in GMS - said the company still faced a number of challenges, including a likely requirement of further capital.

The Netherlands-based Seafox pointed to the current Covid-19 outbreak and the slump in global oil prices, adding that "in the last sustained period of depressed oil prices, GMS saw its secured backlog fall by over 75 per cent in just one year (from $615.9 million in November 2015 to just $137.3m in November 2016)".

Seafox argued the company's current backlog of $240m "may face some deterioration, especially in the short and medium term" and that the company had been forced to renegotiate its bank debts with lender every year since its IPO four years ago "at a material cost to its shareholders".

It said the company's current net debt of $390m equates to an "adjusted ebitda multiple of more than 7.5x" as at the end of last year. The agreement with lenders gives it space to execute its business plan "but requires significant deleveraging" to avoid heavy additional penalties either through the exercise of warranties or imposition of higher interest PIK notes.