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Teekay Corporation - Surprise Sale Of Teekay LNG Partners Likely Prelude To Strategic Reboot

Henrik Alex profile picture
Henrik Alex


  • Discussing surprise sale of Teekay LNG Partners to private equity firm Stonepeak.
  • Estimated sales proceeds of almost $640 million will enable the company to redeem $250 million in high-yield debt well ahead of maturity.
  • Updating net asset value estimates. Pro forma net cash position calculates to $332 million.
  • Management's statement in the press release hints to upcoming changes in the company's business strategy. A push into renewable energy might be in the cards.
  • Uncertainty regarding the company's future strategic direction has caused the discount to (pro forma) NAV to widen. Speculative investors might consider using this opportunity to scale into the shares but should remain wary of the stock's correlation to oil prices.
3D-Rendering von LNG-Tanker segeln in offener See

alvarez/E+ via Getty Images

Note: I have covered Teekay Corporation (NYSE:TK) previously, so investors should view this as an update to my earlier articles on the company.

On Monday, Teekay Corporation ("Teekay") surprisingly announced the sale of its subsidiary and most valuable asset Teekay

This article was written by

Henrik Alex profile picture
I am mostly a trader engaging in both long and short bets intraday and occasionally over the short- to medium term. My historical focus has been mostly on tech stocks but over the past couple of years I have also started broad coverage of the offshore drilling and supply industry as well as the shipping industry in general (tankers, containers, drybulk). In addition, I am having a close eye on the still nascent fuel cell industry.I am located in Germany and have worked quite some time as an auditor for PricewaterhouseCoopers before becoming a daytrader almost 20 years ago. During this time, I managed to successfully maneuver the burst of the dotcom bubble and the aftermath of the world trade center attacks as well as the subprime crisis.Despite not being a native speaker, I always try to deliver high quality research to followers and the entire Seeking Alpha community.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (101)

Gary H profile picture
Hello, TGP investors.Now that some time has passed since the Stonepeak announcement and they indicated in the announcement that Preferred Shares are EXPECTED to remain outstanding and continue to trade on the NYSE, do we feel any better about holding on to the B series Preferred ? They have recoved nicely from $25.03 to above $26 consistently.
My understanding is that Stonepeak can do whatever they want with the Preferreds. Stop payments and even delist. The question is - what penalty is there to Stonepeak if they do that ? Will it be harder to borrow money in the Capital markets ? All knowledegable comments welcome Thanks
@Gary H,

JMO, I own a very large position in the B preferred. Feel that there is no chance Stonepeak will discontinue distributions. Much more of a chance they delist, but really doesn’t matter much to me either way. B is not redeemable until 2027 and I plan on holding till they are called.

Would assume that the A would be redeemed shortly after the acquisition closes. Of course, that’s not a certainty.

Thought the GLOG A preferred would be redeemed as soon as GLOG common went private with Blackrock. They still remain listed and distributions continue each Q. As I invest for income, hold all my preferred positions till redeemed. GLTU

ggravelle profile picture
@stonergreg13 I concur with your comments. Remain long.
Assuming the TGP closes, TK is selling for cash value and you get TNK free. Today's price 3.27 cash per share is 3.28.

I do share the concern mentioned in this article that they pivot
push into renewable energy. How did that work for Eneti?

I'd like to see a double down into tankers TNK or a stake in TORM
Henrik Alex profile picture

Won't happen. Tankers are considered to represent the past, not exactly something that would fit into a "strategic vision".
MARTI0141 profile picture
I've been sitting on this misguided mistake (TK) for a few years now - currently down 60%.
Pondering whether to just give up & move on with what is left.
Perhaps this is just another DRYS?
My other (current) major mistake is GLNG - down 50%.
Shipping is not for me!
@MARTI0141 There're a few more names you can add to that list of misfits recommendations from years past but at this point I would wait it out a little longer on those 2.. $TK could get a short lived spike if they go ESG and the $NFE crowd could put some more fire under $GLNG.. Be very nibble as opportunities may be very short lived..
PipelineDancer profile picture
I have no crystal ball and can't give investment advice, but will share that I used to have large positions in TK and GLNG and reluctantly gave up on the thesis there due to frankly utter mismanagement by their executive teams and the fact that their customer base never seemed to value their products/services the way they intended. GLNG would be more enticing to keep (and their platforms SHOULD be selling like hotcakes but evidently aren't), but TK itself is nearly a short for me personally, largely because after decades of poor capital allocation I struggle to believe they will somehow make smart long-term decisions on where to invest their TGP capital.

I think shipping is an incredibly hard area to make money in as a small retail investor. It doesn't work well with buy and hold, in my opinion.
@PipelineDancer Couldn't agree more with your comments on both companies, and like I said somewhere else in this thread, in order for anyone to be long TK at this point, you'd have to be able to say yes, I want Kenneth Hvid to manage my money. Given his previous track record, I can't fathom how anyone could make that choice. Because I actively traded the position, I probably ended up net positive with TK, but GLNG (and DLNG, for that matter) were both clear losers for me.
valuinvst profile picture
TK dropping while TGP fixed and TNK up. Maybe there's a trust issue here?
Henrik Alex profile picture

Sure. Huge sell orders basically each day now. Investors rightfully fear another poor capital allocation decision, most likely towards renewable energy.

In addition, there's basically no correlation to energy prices anymore with the remaining FSPO chartered at a fixed rate and TGP sold.
@valuinvst lots of people (myself included) were in TK as a levered vehicle to TGP. Most of these investors will be selling, creating sell pressure. Probably TK will eventually recover and close the gap, but i don't see that anytime soon as huge funds are probably exiting
are they not aware of the generational winter demand for lng shipping to china, india ?
Henrik Alex profile picture

They are mostly operating on long-term charter contracts. It does not really matter where gas prices are today.
valuinvst profile picture
@Henrik Alex What matters is increasing demand, followed by supply and shipping contract renewals and newbuilds. Growth was in front of us and price was a steal from common holders who waited for the upturn.
DS88 profile picture
I think this deal will be challenged legally given the history here of insider dealing to the detriment of the public holders of TGP. Also, how do you expect them to close by year end? Will take several weeks/month to put together the proxy, then a month or more at SEC and then time to call a shareholder vote, seems like 4 months at minimum. Also I see StonePeak has bought a big position in NFE - I bet they have a plan here. The price they are paying for TGP is way to low especially given what TGP management said about future prospects a year ago when they issued 7.5 Million shares to their parent for the IDR diluting us - did we get the future dividends that they promised on approving this? NO, TK gets $180 million more in consideration to the detriment of the public share holders of TGP buy doing that deal and selling now. Since then the prospect for TGP have improved substantially. TK may need the money but i do not, I want to keep this high dividend stock especially since dividends growing and debt declining - where can you buy a $6 Billion business, have financing in place and continue to dividend out money at 7% plus rates on your investment?
Stay tuned, this story is just beginning.
Henrik Alex profile picture

It is their target to close by the end of this year and they won't make such a statement without a reasonable chance of closing the deal until then.

In addition, Stonepeak hasn't "bought" a big position in NFE, they simply sold their stake in HYGO to NFE in a cash- and stock deal.

You might not like the price but this deal looks pretty firm.

You are just wasting time here.
DS88 profile picture
@Henrik Alex Time will tell, stay tuned. I am two for two in the past recovering substantial funds for the minority shareholders. The facts are on the minority shareholders (unitholders) side
Henrik Alex profile picture

I can tell you with great certainty that you won't succeed this time. This deal is done.
Blue Sky & Sunshine profile picture
When private equity starts getting involved with listed MLPs I immediately do 2 things:
1. Check my wallet.
2. Sell any common AND PREFERRED holdings in subject MLP:

After watching the saga of Teekay offshore preferreds (whose dividends were indefinitely postponed a few months ago to allow higher interest payments to Brookfield:

and the near elimination of distributions for HMLP common and the follow-on effect on the HMLP class A preferreds:

its clear that MLP's, to the extent they are investable at all for small, retail holders, must be avoided like the radioactive garbage they quickly become once minimally scrupulous private equity gets involved.

This applies to TGP preferred stock 100%.
@Henrik Alex would like to understand from your perspective how TK's share price is consistently tethered to TNK and the price of oil. This remains a market mystery to me. Or is today's price action (TK down 4.2% vs TNK down 2.8%) related to folks reacting to the deal.

Isn't their remaining FPSO contract fixed at this point?
Henrik Alex profile picture

As to my knowledge, their remaining FPSO contract has a fixed component and a component related to oil prices but the contract isn't really moving the needle for TK.

And their 28.6% stake in TNK isn't that material either compared to the $640 million cash proceeds from the TGP sale.
I thought they removed the variable component with the most recent contract.

It seems like the variable components are what crushed TOO and sunk TK's FPSO segment.
Richard Flower profile picture
since mgt wants to sell the assets at a lowball price of $17, maybe they'll then use the money to buy half of it back at $30, which is near what they said the assets were worth a few years ago, isn't it?
@Richard Flower Why do you think the assets are worth more and why would an owner of 40 % of TGP sell at a lower price?

I don't want smoke and mirrors. What are they worth and WHY?
Henrik Alex profile picture

Long-term TGP investors are likely unhappy because the units traded MUCH higher until late 2015. And many think management is inept to negotiate a better price.

Personally, I would have expected a slightly higher price but I don't have much to back up my expectations.

Their vessels are getting older and long-term contracts are going to expire one day.

In sum, I don't think that investors got such a bad deal.
@Henrik Alex Yes, I was trying to understand their disappointment.

*8x times cash flow is pretty stout when some of the dry bulkers are trading at 2 x

Up 70 % from this year low not too shabby and your comments on the debt repayments make alot of sense.
Don't the series "B" preferred shares still seem solid since the call provision runs into 2027??
Henrik Alex profile picture
@Joel the good

Yes, it has also been discussed in the article.
The TGP.PB shares could be a good, stable investment bought near par here for income; given they are cumulative Stonepeak would have no way to orphan this issue. Best for them would to be call it in at par in 2027. I like the idea of that nice yield for 6 years.
galicianova profile picture
@Rantz unfortunately there is no "no way". i just sold my TGP for 22% cap appreciation in less than 6 months. will seek other green pastures
@galicianova yep, same here; I captured a nice fat gain on TGP common yesterday so happy with that part; thinking about replacement options. But unsure how good of a "landlord" Stonepeak will be over the B shares.
@Rantz The B-Preferred share pays 8.5% and that was fair compensation for the risk associated with TGP. IMHO, this new scenario warrants a higher risk premium. Preferred share holders have no recourse: assets can be sold, preferred share dividends suspended, senior debt issued, portions of the company can be spun off and bankrupted, countless potential bad outcomes exist. I sold my preferred B shares today, the risk is too great for 8.5%.
Always appreciate your perspective and insights. Great analysis and forecast on $TK use of proceeds.

long $TGP and $TK
Cosmic Pony 8 profile picture
What's the consensus on whether to get out now or assume one mare divi will be paid in Q4. I made the mistake of holding out on another stock until the sale closed and my brokerage charged me fees for the transaction.
@jaayg Hi All, any feedback on this? I would assume the divi in October will be paid, does anyone has any information on this? Is there any confirmation regarding the completion of the transaction date at the end of 2021? I bought shares in January 2021 and I would wait if I could to that time in 2022 to sell. Thanks!
Arch_Duke_Ferdinand profile picture
Management is cashing out ... Mgt to Shareholders GLTA!
At the minimum, I would expect the discount to narrow to 10 per cent. It’s been around 20 per cent for last few weeks

Arbs could buy TK and short TNK to capture

Regarding TNK,

The ships are getting older, scrap values are high, used asset prices are relatively high, makes me believe that it might be a good time to sell off at least the older ships and if they want to stay in the business, buy some modern vessels
galicianova profile picture
Are TGP shares worth holding or better to sell the goodie??
@galicianova You have to consider the oppotunity cost. With management holding 41%, the likelihood of voter approval is certain. If there are other stocks that you perceive to have good prospects, what is there to wait for? I sold out at 16.95 in order to invest equally in 2 companies- HII and MMP- that I perceive are undervalued. I'm up on both.
galicianova profile picture
@Nathan5 I SOLD FEW DAYS AGO AT 17.10. MaDE TWENTY SOME % and good buy.
Nazim Macbeth profile picture
@Henrik Alex

I would agree, this is most likely a pivot towards a forward leaning energy portfolio. I would not be surprised to see them sell TNK shares if they rally anytime in the next 12 months.

From what I could gather on my calls with Ryan Hamilton, Director of Finance, they could potentially use the parent as a special purpose vehicle for investments into green or zero carbon tech.
@Nazim Macbeth Sure! They are so incompetent that the are selling a winner at ridiculous prices to go green at the most expensive multiples.
@Valoryf Agreed - I have no argument with Henrik's assessment, but given his track record over the past 3-4 years, would any investor allow Kenneth Hvid to manage his money for him - because that's what you're doing if you're long TK at this point.
What about a merge between teekay corp and teekay tankers and using the cash from teekay corp to deleverage teekay tankers (and probably invest in tankers ahead of the cycle change)?
Henrik Alex profile picture

Management's statement certainly don't read like they would go all in on tankers.
ggravelle profile picture
nicely done
Thanks for providing clarity to this confused mess.
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