OSG Acquires Maritrans: A Question of Value

In 2005 we presented to Overseas Shipholding Group (OSG) CEO Morten Arntzen our prestigious Dealmaker of the Year Award. As supporting deals, we cited the $1.3 billion, winter 2004-2005 acquisition of international product tanker specialist Stelmar, the $1 billion order of 10 US flag product tankers from Kvaerner Philadelphia Shipyard, the successful $581 million public markets spin-off of sale leaseback vehicle Double Hull Tankers, and the $900 million facility backing the OSG Nakilat LNG venture.

Then for the better part of 2006, OSG appeared to be taking some time off of strategic acquisitions and financial engineering to absorb all its activities from 2004-2005. Meanwhile we watched consolidation occur throughout the global product tanker sector and we watched US Shipping follow the Aker American deal’s lead as it contracted with NASSCO for Jones Act product tanker newbuildings. All along, however, OSG focused on three primary objectives which we cited in 2005 as 1) selling ships at high prices and leasing them back for medium periods to control asset intensity without increasing ownership; 2) growing OSG’s presence in the US flag sector and 3) diversifying OSG’s exposure to the crude tanker market.

While not entirely expected, then, it was hardly shocking when the announcement came in September 2006 that OSG had entered into a definitive merger agreement to acquire leading US flag crude oil and petroleum products transportation company Maritrans (TUG) for $37.50 per share in cash. The deal accomplished both the goals of growing OSG’s presence in the US flag sector and diversifying OSG’s exposure to the crude tanker market, though the fact that the deal priced at a 47% premium to where TUG’s stock had been trading raises concern that the assets acquired were anything but cheap, a point that we will revisit later.

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