And the market says Farstad you’re down by a 1/3, Deep Sea by a mere 7% and Solstad up 1.5% today (for comparative purposes Hornbeck was down 2.2% and Subsea 7 down 1.3%). Farstad was always going to have to do a debt for equity swap and given the share issue mechanics this appears now to have essentially wiped them out, a market cap of NOK 86m when you have debts of NOK 1.2bn always meant the shares were an option on the unlikely or absurd . Clearly the Solstad investors are buying a scale story and the dilution margins for the other investors that put Solstad firmly in the driving seat. Personally I would have paid Deep Sea and Farstad to take my supply vessels if I was Solstad and Aker, the NOK 600m at the top end of the synergy savings, would seem cheap insurance if the shareholders could offload their PSV and AHTS exposure. The most recent Solstad financials show that its 43% fleet mix of subsea vessels in 2016 generated 78% YTD revenue and 96% YTD EBITDA.
Into this they have now merged a large PSV fleet, with limited contract coverage, and a large AHTS and PSV fleet, with limited contract coverage. Banks have effectively reduced the asset value exposure somewhat and there is precious liquidity and working capital facilities. But this is a market where Standard Drilling is buying PSVs at .10-.30 of implied depreciated value and these transaction multiples are nothing like this. I get why the banks like this deal I just don’t get the shareholders support here.
And the deal just doesn’t seem to provide sufficient scale to generate pricing power with more vessels in lay-up in the North Sea than the combined fleet. If you had the time or the energy to run an HHI model I am sure the number for HugeStadSea would come in at close to zero as the merged company will have 111 supply vessels out of a total fleet of 2100. Also JF is really selling Deep Sea to Solstad here, and as a general investment rule that you can’t argue with quantitatively, you are better off financially buying with JF than buying off him.