With the equity markets breaking out above previous highs, the fleet of one large workboat player, Hornbeck Offshore Services (NYSE: HOS) with stock performance outpacing the major stock indices for the year to date, continues to grow.
As HOS was taking delivery of the first of four HOSMAX 300-class OSVs from Eastern Shipbuilding and preparing for the arrival of the second, the company was also active on the finance front. Among other things, it renewed a “rights offering” similar to one that was originally put in place 10 years ago and was expiring. The offering was effective July 15.
Analysts have different views of rights offerings, but they are mainly designed to fend off takeovers. In the case of Hornbeck, where insiders and institutional funds are major shareholders, the family’s view closely matches that of its outside owners. Put another way, if a credible and qualified (more in a minute) buyer offered $130/share (double the target of many analysts), it would make sense for all concerned to get something done. But one only has to look back a few years when John Fredriksen’s Frontline was nibbling at OSG and start scratching their heads. “What about that Jones Act requirement of U.S. citizenship?” “Qualified” means mainly U.S. citizen holders.
The company noted these concerns in their announcement of the latest rights offering which trumps questions (at the time of future offer) such as, “Why doesn’t the boss want to sell?”
The bigger picture is that while offshore energy services are a hot sector of the market, the Jones Act franchise is worth a great deal (unfortunately, not always recognized in the stock markets). HOS is active mainly in the Gulf of Mexico, but also farther afield (albeit with Jones Act boats). As Norwegians (such as Mr. Fredriksen) may cast their eyes towards HOS headquarters in Covington, La., it’s better to allay Jones Act concerns well in advance.