In a turn of events straight from the Wall Street playbook, Eagle Bulk Shipping (US:EGLE) made a bold move this week to fend off a potential hostile takeover.

Responding to Danaos Corp’s stealthy acquisition of a significant stake in the company, Eagle Bulk opted for a strategic “poison pill” approach, buying back Oaktree Capital’s 28% share of the company for $219.3 million and instituting a shareholder rights plan to prevent a potential corporate raid.

Eagle Bulk purchased around 3.8 million shares of common stock at $58 per share, a move interpreted by industry insiders as a strong indicator of the company’s financial health and commitment to shareholder value.

This significant transaction came in at a solid 20% premium to the $48.37 closing price on Friday, close to its 12-month high point reached earlier in the year. Existing shareholders may not have been happy with the price considering shares have traded in a range below this for the most part of the last few years. EGLE stock has outperformed the industry so far in 2023, with the shares adding less than 1% while the Breakwave Dry Bulk Shipping ETF (US:BDRY) fell more than 33%.

Waning institutional interest

It has not helped that interest from other institutions has continued to stagnate in recent quarters. Data compiled on the Fintel platform highlighted that the number of funds owning and backing the stock has declined by 5.5% during the most recent quarter, to 321 long-only positions of a total 326 on the register.

The average portfolio allocation has declined by 15.75%, fuelled by a weakening share price, down 4.5% in the last six months. EGLE stock’s Fintel Fund Sentiment Score of 23.86 ranks it in the bottom 20% out of 36,054 other globally screened securities for the highest levels of institutional interest.

The latest financial maneuver, while increasing Eagle Bulk’s debt due to the funding mechanism through their revolver, is projected to nominally boost the company’s net asset value (NAV) per share and its earnings per share. Prior to this move, the company’s NAV was estimated at $64.33 per share. With the share buyback, this figure is expected to add 59 cents to $64.92 per share.

Disruption Cloud Dissipates

The strategic acquisition of Oaktree’s shares not only boosts the financial metrics but also removes the overhang of a potential market-disrupting exit by Oaktree, thus potentially stabilizing the share price and reinforcing some investor confidence.

“Today’s transaction is in the best interest of our shareholders, both financially and strategically. It ensures that shareholders maintain the opportunity to realize the value of their investment in Eagle Bulk,” said Paul Leand, Eagle’s Chairman.

Additionally, Eagle Bulk adopted a limited-duration shareholder rights plan to safeguard the interests of its shareholders against predatory tactics. The rights plan came into effect immediately and will run for a year through to June 22, 2024.

The rights plan should deter any potential suitor from acquiring beneficial ownership of 15% or more of the company’s common stock without offering a fair premium.

This defensive strategy followed the discovery that Danaos, led by John Coustas, had quietly accumulated approximately 9.99% of the shipping company’s common stock.

The bulk of these acquisitions occurred after Eagle Bulk shares took a 20% hit due to weaker first-quarter earnings and a sharp fall in charter rates.

Short Squeeze Potential

Eagle Bulk Shipping currently has around 1.32 million shares short on the stock, according to Nasdaq. This represents around 10% of the stock’s float with 2.62 days to cover.

While the availability of shares has grown in recent days, short borrow fees have also ticked up in the last few days. If the share price was to begin rallying, this could leave shorters in a sticky situation.

Fintel gives the stock a Short Squeeze Score of 83.65, ranking EGLE in the top 5% when screened against 3,737 other U.S. stocks with the potential for a short squeeze.

Despite the bold moves, Eagle Bulk’s management claims that its balance sheet remains sturdy with total liquidity of approximately $188 million. It has also pledged its commitment to continue executing its growth and renewal strategy, including building upon its 33 previous ship acquisitions.

Gary Vogel, Eagle’s CEO, underscored the company’s focus on value creation, stating, “We remain committed to acting opportunistically to create value for all of our shareholders.”

Analysts on Eagle

Following the most recent first quarter financial update in May, Jefferies analyst Omar Nokta reduced his ‘buy’ call 12-month target price from $68 down to $60.

Nokta said that while the Q1 results were weak, they were better than the firm’s internal expectations. Jefferies thinks the financial performance of the shipping company will improve in the coming quarters.

Fintel’s consensus target price of $67.93 suggests that analysts are mostly bullish in the market, forecasting that shares could rise 40% over the next 12 months.

While the recovery ran out of steam in early June, medium-term recovery trends are taking control again with the price back on the road to recovery.

The chess game in the maritime transportation market has just become more interesting with these recent moves. Whether Danaos or any other potential buyer will advance or retreat, remains to be seen.

Meanwhile, Eagle Bulk seems prepared to play the long game, adopting strategies that boost shareholder value and protect its independence.

This article originally appeared on Fintel

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