Note:
I have covered Grindrod Shipping Holdings Ltd. (NASDAQ:NASDAQ:GRIN) previously, so investors should view this as an update to my earlier articles on the company.
Grindrod Shipping Holdings Ltd. or “Grindrod Shipping” is a medium-sized dry bulk shipping company focused on the smaller, geared vessel classes.
In late 2022, major shareholder Taylor Maritime Investments Limited (OTCPK:TMILF) or “Taylor Maritime” launched a cash tender offer with an aggregate value of $26 per common share.
While Taylor Maritime managed to accumulate a 83.23% stake in Grindrod Shipping, the company failed to reach the compulsory acquisition threshold of 90% required for a subsequent squeeze-out of remaining shareholders.
Over the past year, both Taylor Maritime and Grindrod Shipping have been working on reducing debt levels and integrating operations under the leadership of Taylor Maritime founder Edward Buttery.
After the close of Thursday’s regular session, Taylor Maritime launched a new effort to achieve 100% ownership in Grindrod Shipping (emphasis added by author):
The Board of Taylor Maritime Investments Limited (“TMI” or the “Company”), the listed specialist dry bulk shipping investment company, is pleased to announce that its subsidiary, Grindrod Shipping Holdings Ltd (“Grindrod”), has today announced that it proposes to implement a selective capital reduction exercise (the “Selective Capital Reduction”) pursuant to sections 78G to 78I of the Companies Act 1967 of Singapore.
Under the Selective Capital Reduction, Grindrod proposes to cancel all of the shares held by its shareholders, other than the shares held by Good Falkirk (MI) Limited (“Good Falkirk”), comprising 3,479,225 shares. Good Falkirk is a wholly-owned subsidiary of the Company through which the Company currently holds its existing stake in Grindrod.
Each participating Grindrod shareholder will, subject to the implementation of the Selective Capital Reduction and the satisfaction of certain conditions described below, receive US$14.25 for each Grindrod share that is cancelled.
The Selective Capital Reduction must be approved by way of a special resolution at an extraordinary general meeting of Grindrod. The Company, Good Falkirk and their respective concert parties will abstain and not vote on the special resolution relating to the Selective Capital Reduction. (…)
If the Selective Capital Reduction is successfully completed, Grindrod will become a wholly-owned subsidiary of the Company.
In layman’s terms:
Grindrod Shipping offers to buy out minority shareholders against a cash payment of $14.25 per common share.
Not surprisingly, the news resulted in the company’s shares staging a 30% rally on Friday on much higher-than-average volume:
Yahoo Finance
However, with controlling shareholder Taylor Maritime not permitted to vote on the proposal, approval won’t be an easy task, particularly with Singapore law setting a very high hurdle.
To be more precise, shareholders will be provided the opportunity to vote on the proposed selective capital reduction at an extraordinary general meeting. On the meeting, a special resolution in favor of the proposal will have to be passed by minority shareholders, but this would require approval of at least 75% of all shares voted by shareholders present and voting at the meeting.
However, passing the required special resolution could be an uphill battle as the company is now offering just $14.25 per share to largely the very same shareholders that decided against a $26.00 per share cash tender offer in late 2022.
In addition, based on my calculations, the offer represents an approximately 12% discount to estimated net asset value (“NAV”):
Regulatory Filings / Value Investor’s Edge
Granted, there might have been some turnover in the shareholder base since the expiration of the Taylor Maritime tender offer in late 2022 but considering the stock’s measly average trading volume, it is fair to assume that most shareholders have been sticking to their holdings.
Given this issue, reaching the 75% threshold looks like a Herculean task and for my part, I wouldn’t be surprised to see Grindrod Shipping falling well short of the required number.
With approval anything but certain and shares trading just 4% below the proposed buyout price, I would strongly advise investors to consider selling into the open market next week to avoid the risk of shares giving back all of Thursday’s gains in case the special resolution doesn’t pass on the yet to be scheduled extraordinary general meeting.
Bottom Line
At least in my opinion, the odds are stacked against Taylor Maritime’s renewed effort to reach 100% ownership of Grindrod Shipping.
However, with shares trading just slightly below the proposed buyout price, Grindrod Shipping shareholders should consider selling into the open market and moving on in order to avoid the risk of shares giving back all of Thursday’s gains in case of the buyout proposal not being approved on the upcoming extraordinary general meeting.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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