Barbarians at the Gate?
The leveraged buyout (LBO) industry’s image has transformed from the junk, debt-fueled corporate raiders of the 1980s to the matured, institutionalized, and non-threatening private equity professionals of today. New image aside, the LBO core playbook remains the same: purchase an underperforming company that can be funded, in large part, by taking on new loans secured by the existing assets of the target business.
The loan part is the kicker—it allows the corporate-raiders-turned-private-equity workers of Wall Street to take control of these underperforming companies while minimally risking their own capital.
Activist investors largely overlook the shipping industry because, historically, shipping businesses already have
a lot of debt,
incredibly volatile underlying assets (ship prices and their earnings), and
a defensive controlling shareholder.
As shipping companies aggressively repay their loans on the backs of a strong earnings environment in recent years, their pre-existing debts are decreasing and most stocks are trading at a steep discount to their net asset value (NAV)—thereby removing reason number 1 for activist investors to overlook shipping.
One publicly listed shipping company with low debt and a NAV at a steep discount is Teekay Tankers (NYSE: TNK) which:
Owns a fleet of 38 oil tankers that are worth approximately $1.4 billion,
Has roughly $600 million of cash on their balance sheet, and
Has zero debt.
$1.4 billion of fleet value + $600 million of cash - $0 debt = NAV of $2.0 billion for TNK.
If a private equity firm were to offer to take TNK private (i.e., purchase all of the outstanding shares), it could do so at a 30% premium.
TNK currently has a market capitalization of $1.3 billion (based on the closing share price of $39.03 on April 21, 2025).
$1.3 billion market capitalization + 30% premium = $1.7 billion
A $1.7 billion offer to take TNK private would still be at a discount of its NAV. And you could make this offer by taking debt against TNK’s existing assets.
Take out a loan worth 75% of the current fleet ($1 billion).
Use cash on the company balance sheet ($600 million).
Inject equity ($100 million).
While a $100 million equity injection is major, with this injection you now control one of the largest fleets of midsize crude tankers in the world.
Keep an eye out for the Barbarians at the Gate!
PS - The corporate structure of Teekay Tankers, Teekay Corp (NYSE: TK), and its controlling shareholder (a private trust) pose some nuances, which makes this theoretical deal easier said than done, but the math is starting to get interesting.
