The containership chartering company Global Ship Lease (GSL) will double the size of its fleet to 38 ships as a result of a merger with Poseidon Container Holdings.
Global, which has 19 ships with 85,136 TEUs, will grow to 38 ships with capacity of 198,793 TEUs.
Publicly traded and listed on the New York Stock Exchange, GSL today is 44 percent owned by CMA CGM.
The merger will be accomplished through a stock-for-stock transaction. On a pro forma basis, after the deal is completed, Poseidon shareholders would own 69.5 percent of the company and GSL shareholders 30.5 percent. No shareholder approval is needed.
CMA CGM will own 13.3 percent of GSL, and the largest owner will become Kelso & Co. with a 56.4 percent stake. Kelso, a New York-owned private equity firm, is currently the majority shareholder in Poseidon.
Ian Webber, chief executive officer of SL, said the deal will “diversify and enlarge our portfolio of customers, improve our fleet age profile, reduce leverage and significantly strengthen our ability to capitalize on compelling growth opportunities.”
While they are not part of the merger, Webber said GSL will “benefit from the extensive operational and commercial capabilities” that George Youroukos, the CEO of Poseidon, has separately established. These include Technomar, a ship management company, and ConChart, a commercial management organization. Webber will remain CEO of the company, while Youroukos will become executive chairman.
Webber said GSL will benefit from new eco-design ships in the Poseidon fleet. These include three 9,115-TEU wide-beam vessels and six 7,000-TEU vessels, as well as 10 other ships ranging in size from 2,500 TEUs to 6,500 TEUs.
In a phone call with securities analysts, Webber said the deal will provide GSL with a more modern fleet, and will enhance its earning power in what the company believes will be an improving charter market. He said the addition of the Poseidon fleet will reduce the average TEU-adjusted age of GSL fleet by three years to 10.7 years.
He said the company will diversify the stable of liner carriers that charter the company’s containerships. 17 of the ships in GSL’s current fleet are chartered to CMA CGM and one to Maersk and one to OOCL. With Poseidon, the companies will also charter to MSC, Hapag Lloyd, COSCO, Wan Hai, ONE and ZIM.
Webber said the deal will increase the company’s exposure to the spot market at a time when GSL believes “the market fundamentals are supportive.”
He said the company will be better able to “capitalize on growth opportunities at what we believe to be an optimal point in the cycle with an enhanced and expanded position in the midsize and smaller containership segments.”
Youroukos said there was “continuing decent demand growth in the majority of the world’s container trades which are served by the midsize and smaller fleet,” a low orderbook for such ships, lot of scrapping of them in 2016 and 2017, and "cyclically low asset prices.”
GSL also reported third quarter financial results, saying it had operating revenue of $35.9 million for the third quarter 2018 compared with $41.2 million in the same 2017 period. It reported net income available to common shareholders of $3.9 million for the third quarter 2018 compared with $8.9 million in the same 2017 period.
GSL gave this summary of the transaction with Poseidon:
• GSL will issue 24.045 million shares of Class A common stock and 0.250 million shares of Series C perpetual preferred stock, which are convertible into an aggregate of 103.642 million shares of Class A common stock. Affiliates of Kelso & Company LP will be the sole holder of the convertible preferred stock, which is not entitled to any preferred dividend payments other than those payable to common shareholders and represents approximately 49.2 percent of the voting power and approximately 56.4 percent of the economic interest in the company.
• In addition, the currently issued and outstanding shares of Class B common stock of the company will convert to shares of Class A common stock under the terms and conditions of the company’s articles. The transaction values Global Ship Lease at $100 million, or $1.7825 per Class A common share, which is 105 percent higher than the closing price of $0.87 for the Class A common shares on Friday.
• Upon closing of the transaction, Poseidon Containers will contribute an additional $227 million in equity value, and as a result, members of Poseidon Containers are expected to own approximately 69.5 percent of the economic interest of the company. The merger is expected to reduce the company’s overall financial leverage to approximately 67 percent on a loan, net of cash, to charter-adjusted value basis.