The Case Against Accepting Navios Maritime Holding's Recently Enhanced Exchange Offer

| About: Navios Maritime (NM)


Navios Maritime's Tender Offer was snubbed by its preferred shareholders and it failed to reach the 2/3 necessary threshold to force it through.

Why would Navios offer to buy shares that would be virtually worthless in the event of bankruptcy?.

What would induce a preferred shareholder to accept an exchange offer not in his interests?

Navios Maritime Holding (NYSE:NM), after failing to reach the 2/3 necessary preferred shares to accept and ratify the tender offer, immediately rebounded with a minimally sweetened offer designed to accomplish its goal.

For those preferred shareholders considering accepting NM's offer of exchange, I'd greatly appreciate it if you would take the time to seriously consider the following questions I have posed.

  1. Why would a company facing a liquidity crisis and a potential bankruptcy borrow $70 million from one of its subsidiaries to buy out its preferred shareholders with cash it could barely afford, especially at this most critical juncture?
  2. Why now, when those preferred shares presently cost the company nothing because their preferred dividends have been suspended and remain unpaid for the past three quarters?
  3. Why would a company expend severely limited cash resource, much of it borrowed, to buy up preferred shares that would be virtually value-less and gone in the event of an impending bankruptcy, which appears to be the perceived reality of the present?
  4. Why is it so important for the NM management to rid themselves of their preferred shareholders, now when the Baltic Dry Index (BDI) is hovering around 900, and not in February when it reached its all-time low of 290?
  5. Who will benefit most by the absence of the preferred shareholders? Could it be Angeliki Frangou, the CEO of NM who holds 28.5 million common shares?
  6. How will NM become a stronger company with the preferred shareholders bought out for pennies on the dollar, and at the expense of this company's credibility?
  7. Who, in the future, would want to invest in a company that thinks so little of its shareholders?
  8. How would this company ever expect to lure future preferred shareholders to accept their preferred offerings ever again?

The only rational answer to most of these questions is that NM, in fact, does not expect to face a bankruptcy, now nor in the near future. NM, in a calculating fashion, has decided to rid itself of its preferred shareholders and the growing burden of those accumulating missed preferred dividend payments and the restrictions and penalties that come into play when those cumulative dividends are suspended. Furthermore, NM management does not relish the fact that they will be forced to add a new board member chosen by the preferred shareholders to protect their interests from this rapacious board.

The following questions are for the preferred shareholder that might be considering accepting NM's Offer of Exchange

  1. Have you seriously considered why NM is expending limited cash resources to get rid of its preferred shareholders?
  2. Why are you willing to accept pennies on the dollar and common shares that would be value-less should NM go bankrupt?
  3. Why would you tender or sell otherwise?
  4. Why would NM expend those limited resources to get rid of you when you currently cost the company nothing, and the added fact that your shares would be wiped out in the event of such a bankruptcy?
  5. Do you actually believe NM made this offer with your interests at heart and out of the goodness of its board's collective heart?
  6. Have you considered the future ramification to all preferred shareholders should NM succeed in this transparently bad and extortionate offer?
  7. I'm certain this is not the only preferred you are invested in. Will this action become the blueprint for other seemingly struggling companies to cheaply rid themselves of us pesky preferred shareholders and our restrictive protective covenants that kick in when our dividend payments are suspended?
  8. Are the pennies offered that important to your economic futures that you are ready roll over and accept this travesty of an offer that is diametrically at odds with your interests?
  9. Have you seriously considered how you will feel when and if NM ultimately survives and prospers and you are no longer invested in it? And all the profits you would have accumulated had you not accepted such a transparently bad offer that you realized was bad when it was presented?

Finally, it's your preferreds, your money, and your decision to make. Think about it carefully and the questions I have posed before you make your final decision is all that I ask.

Disclosure: I am/we are long NM-G, NM-H.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.