GulfMark Offshore Inc. confirmed Monday that it has received a non-binding, unsolicited merger proposal from Harvey Gulf International Marine (HGIM).
In the proposal, GulfMark would acquire New Orleans-based Harvey Gulf, with the combined company remaining publicly listed. Pursuant to the Harvey Gulf proposal, GulfMark stockholders would own 41.2% of the combined company. GulfMark provides marine transportation services to the energy industry through a fleet of offshore support vessels serving every major offshore energy industry market in the world.
As previously announced on July 16, GulfMark entered into a definitive agreement with Tidewater to combine the two companies in a $1.25 billion merger. Under the terms of the all-stock agreement, GulfMark stockholders will receive 1.100 shares of Tidewater common stock for each share of GulfMark common stock they hold. Each GulfMark noteholder warrant will be automatically converted into the right to receive 1.100 Tidewater shares, subject to Jones Act restrictions on maximum ownership of shares by non-U.S. citizens. Concurrent with the closing, $100 million of the existing GulfMark debt is expected to be repaid.
"I think there's a better chance that the Tidewater agreement goes forward, the merging of a globalwide vessel market," said Richard Sanchez, senior marine analyst II, IHS Markit-MarineBase, Houston. "That makes more sense."
Matthew Freeman, a director with UK-based VesselsValue, said that with a combined fleet of 274 vessels, a merger between GulfMark and Tidewater would lead to one of the largest OSV fleets in terms of overall size with an average age 10.7 years. "If a merger would materialize between Harvey Gulf and GulfMark, it would mean a smaller overall fleet size of 129 vessels but with an average age of 9.2 years," he said. "The Harvey Gulf fleet consists of 57 OSVs and six OCVs (offshore construction vessels), a sector that GulfMark does not currently have a presence in, so the main questions here are size over speciality and what the future holds."
In a statement released by Harvey Gulf following GulfMark's announcement of the proposal, the company said its offer would have greater value to GulfMark stockholders than Tidewater's deal. "A combined Harvey and GulfMark would be a superior company to Tidewater following its acquisition of GulfMark due to its robust long-term prospects, in particular, with respect to geographic diversification, superior fleet and significant positive cash flow," the company said.
Based on its strong operational and financial history, GulfMark stockholders will be much better positioned for the future if GulfMark combines with Harvey rather than Tidewater, Harvey Gulf officials said. "During the 12 months ended March 31, 2018, Harvey generated earnings before interest, taxation, depreciation and amortization (EBITDA) exceeding $130 million, representing an EBITDA margin of 57.2%, compared with Tidewater’s EBITDA of $6.7 million and 1.6% EBITDA margin. In fact, during the most significant downturn in the offshore services industry in more than 30 years, Harvey has produced 58% average EBITDA margins over the last three years, peaking at 61%," Harvey Gulf said.
GulfMark’s board is now obligated under its merger agreement with Tidewater to review the proposal to see if it is a better offer than Tidewater’s. GulfMark’s board has not made any determination as to whether the Harvey Gulf unsolicited proposal constitutes a superior offer under the terms of the Tidewater merger agreement, and has no timeline as to when such a determination would be made. However, a special meeting of GulfMark stockholders is scheduled for this fall.
Harvey Gulf emerged from bankruptcy on July 2, 2018, as a private company. Harvey Gulf‘s proposal says its enterprise value is $900 million, a valuation that has not been validated by GulfMark. It would imply a total Harvey Gulf equity value of $595 million based on Harvey Gulf’s reported $305 million of outstanding net debt. Based on the foregoing, and GulfMark’s public equity valuation of $337 million as of the close of business on July 13, the last trading day prior to announcement of GulfMark’s proposed merger with Tidewater, the Harvey Gulf 100% stock proposal would imply a combined equity value of $932 million, and a 41.2% ownership interest would imply a value of $384 million for GulfMark stockholders (or $37.93 per GulfMark share).
GulfMark's board will review the Harvey Gulf unsolicited proposal in a manner consistent with its fiduciary duties and in compliance with its obligations under its merger agreement with Tidewater. At this time, GulfMark continues to believe that the Tidewater merger is in the best interest of GulfMark stockholders and continues to recommend that stockholders adopt the Tidewater merger agreement. GulfMark stockholders are advised to take no action at this time.
Gibson, Dunn & Crutcher LLP is serving as legal advisor to GulfMark and Evercore is serving as financial advisor.