U.S. hedge fund JDP Capital Management said it and other minority unit-holders of Teekay Offshore Partners LP (NYSE: TOO) oppose Brookfield Asset Management‘s proposed acquisition of the midstream services provider.
Brookfield’s private equity group, which owns 73 percent of the company, this month offered to buy the remaining interest for US$1.05 per unit.
In an open letter, JDP said it believes Teekay Offshore is worth at least US$4 per unit today based on a cash flow analysis and peer comparisons.
Teekay Offshore is an affiliate of Teekay Corp (NYSE: TK), a Vancouver-based marine energy transportation, storage and production business.
JDP Capital Management finds significant support from other unit holders of Teekay Offshore (NYSE: TOO) to oppose Brookfield Business Partner’s (NYSE: BBU) take-under offer
NEW YORK, May 24, 2019 /PRNewswire/ — On May 17, 2019, Brookfield Business Partners (NYSE: BBU) published a letter requesting that the board of Teekay Offshore Partners LP (NYSE: TOO) evaluate an offer to acquire the remaining publicly traded units of TOO for $1.05 per unit, an all-time low. Teekay Offshore is 73% owned by Brookfield Business Partners.
JDP is an investor in Teekay Offshore and has gathered endorsements from a significant number of other funds and individual minority unit holders to respond to BBU’s public letter.
JDP’s Open Letter to the Teekay Offshore Special Committee
JDP enthusiastically invested in TOO based on extensive due diligence as well as believing in the goals and strategy outlined in the Strategic Partnership with Brookfield Presentation on July 27th, 2017 (“Sponsor Presentation”, see link).
Since BBU became TOO’s financial sponsor, the company has benefited enormously from BBU’s significant capital investment and board leadership. In 2018, Adjusted EBITDA increased ~50% over last year and the Leverage Ratio has improved ~38% in the same period. Further, management recently executed a refinancing of over 30% of its debt structure at highly accretive rates and terms with an expanded banking group.
JDP believes TOO is worth at least $4 per unit today based on a cash flow analysis and peer comparisons. TOO’s longer-term valuation is further underpinned by its large $5.4 billion charter backlog with investment grade counterparties, unique duopolistic market position in its shuttle tanker fleet, high-spec FPSOs, much improved balance sheet profile, and an “improved offshore market” according to its CEO Ingvild Saether on April 30th, 2019.
It is our opinion that the reason for the disconnect between the depressed stock price and fundamental value has been very poor investor relations and confusion among the public unit holders regarding BBU’s continued commitment to respect minority investor interests.
JDP and the investors listed in the response letter feel betrayed that BBU CEO Cyrus Madon would attempt to squeeze out minority unit holders at a price that is a 58% discount to the $2.50 per unit BBU initially paid for 60% of TOO in 2017.
This low offer was made just 20 months after committing to “maximize shareholder value” in its 2017 Sponsor Presentation. Further, BBU based its offer on a recent distressed block trade transaction executed by Teekay Corporation (NYSE:TK) that was forced by its own immediate refinancing pressures.
JDP Managing Partner Jeremy Deal further commented, “We encourage Brookfield Asset Management (NYSE:BAM) CEO Bruce Flatt to reconsider this transaction as it would be incredibly harmful to the Brookfield reputation and brand.”
About JDP Capital Management
JDP Capital Management is a private value-based investment partnership founded in 2011 with offices in New York and Amsterdam.