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.
[…] it can do given the oversupply. But I can’t look at these stats without feeling like the HugeStadSea merger was too early. And quite how NAO, with 10 PSVs, raised money at USD 15m per vessel when the […]
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[…] when more than 100 North Sea class PSVs were in lay-up in January, agreed to effectively bail Farstad out and combine with DeepSea Supply. Now Solstad came out with this predictable bullet point from their results […]
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[…] offshore supply one of the reasons I think the HugeStadSea merger is a mistake is that an industrial buyer is paying far more for the asets than they would be […]
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[…] order for the HugeStadSea merger to go ahead the DESS banks must make the following […]
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[…] (I don’t want to say I told you so). […]
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[…] – no transaction concluded so far“. That would be like the entire DeepSea Supply fleet they merged with a year ago? This is rapidly turning into a huge embarrassment for the companies, directors, and advisers […]
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[…] said at the time this merger was the result of everyone wanting to believe something that couldn’t possibly be […]
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[…] admit that one of the three is insolvent and another of the three has a serious covenant breach. This was always a triumph of hope and complexity over a serious strategy. Having spent NOK 986m in Q1 to get NOK 875m in revenue a financial highlight was considered a NOK […]
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[…] problem as OI: the business plan simply isn’t real. I have no wish to repeat ad infinitum my constant critique of Solstad Farstad. The extension to the Deep Sea Supply fiasco f***up unfortunate situation will now not be revealed […]
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[…] (I saying “buying” because it was then second major rescue attempt after Aker made a spectacular error in timing with REM. It was a deal pushed by the bankers who didn’t want to deal with consequences of Farstad and Deepsea Supply). […]
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