DHT Holdings Inc (NYSE:DHT) is an interesting activist situation. MMI Investments, DHT’s largest shareholder, is calling for DHT to reinstate the company’s dividend and appoint Robert N. Cowen, a “shipping industry veteran with over 30 years of experience including with DHT’s former parent company, Overseas Shipholding Group, Inc., to the DHT Board of Directors.” At its $4.15 close on Friday, DHT has a market capitalization of $202M and is trading at a little over 5x 2010 expected free cash flow. MMI has set out its peer valuation and dividend analysis as an annexure to its latest 13D filing (set out below). The board of DHT has responded by appointing a new independent director, Einar Michael Steimler. DHT’s Chief Executive Officer, Ole Jacob Diesen, has also stepped down.
Says Clay Lifflander, President of MMI:
In the six months through February since DHT eliminated its dividend, a move that was never necessary in our view, the stock price dropped more than -30% at the same time as the average total return of its peers, all of whom currently pay dividends, was +19.5%. We believe DHT’s stockholders deserve better returns on their investment and improved performance from management and the Board. We therefore strongly urge the reinstatement of a dividend of $0.10 per share quarterly and the appointment of Bob Cowen to DHT’s Board of Directors.
The full text of MMI’s letter appended to the most recent 13D follows:
March 2, 2010Erik A. Lind Chairman of the Board DHT Holdings, Inc. 26 New Street St. Helier, Jersey JE23RA Channel Islands
Dear Mr. Lind:
A s the largest stockholder of DHT Holdings, Inc. (“DHT” or the “Company”), MMI Investments, L.P. (“MMI”) is greatly frustrated with the poor performance of DHT stock, which is near its all-time low, and DHT’s valuation, which is at a severe discount to its peer group (see attachment: “DHT Peer Valuation”). We believe this underperformance is directly related to repeated poor decisions by management and the Board, such as the elimination of the Company’s dividend, and that stockholder value will continue to erode unless immediate action is taken. The board should act immediately to reinstate the dividend at a $0.10 per share quarterly rate and appoint as a member of the Board, Robert N. Cowen, a shipping industry veteran with over 30 years experience (including with DHT’s former corporate parent, Overseas Shipholding Group, Inc. (“OSG”)), as detailed below:
1) Reinstate the Dividend
DHT’s dividend strategy has been consistently erratic, shifting between paying out all available cash flow to paying a regular $0.25 quarterly dividend “to provide shareholders with a stable and visible distribution”1, to the dividend’s complete elimination in September – six months after the stock market bottomed and began its historic rise. This last decision was particularly toxic to stockholders, causing shares to plummet by more than 21% on the day of its announcement, due in part, we believe, to its inexplicability in the face of the nearly $40 million in free cash flow virtually guaranteed to the Company by its long-term charter agreements with OSG.
DHT’s zero dividend policy is not only inconsistent with its own intrinsic fundamentals, it is also dramatically out-of-step with its peers. DHT’s free cash flow yield2 at 23% is more than quadruple the mean of its comparable companies, who average a 5.3% dividend yield and who all currently pay dividends, including those who previously eliminated their dividend during the crisis. MMI recommends a quarterly dividend of $0.10 per share, which would leave significant free cash flow for debt repayment or other deployment in 2010 and 2011, even with the scheduled amortization of debt in 2011 (see attachment: “DHT Dividend Analysis”). A $0.10 per share quarterly dividend would also make DHT’s dividend yield a robust 11.4%, at a premium to its peers – a virtual necessity for stock price appreciation, which would drive the yield closer to parity.
2) Strengthen the Board
The Board’s non-dividend capital allocation decisions have also frequently seemed rash, and been dilutive to stockholder value. DHT’s only acquisitions since inception, the two Suezmax tanker purchases announced in 2007, were acquired at the top of the market for a total expenditure of $183 million. Today they are worth roughly half that amount in our opinion. In light of this poor acquisition track record, we believe the stated reason for eliminating the dividend, i.e. augmentation of the Company’s cash balance for potential acquisitions, only served to further unnerve stockholders.
We also believe this Board’s decision to complete an equity offering in March 2009 was similarly troubling and ill-timed. The offering came near the bottom of the stock market crisis, was priced less than a dollar above DHT’s all-time low stock price and at a dividend yield of 23% (which would subsequently become unsustainable because of the offering itself). Notably the unsustainable $0.25 per share quarterly dividend was eliminated only after it had been paid once to the new stockholders. As if to add insult to injury, at the time of the dividend elimination the offering proceeds were concurrently used to prepay debt in excess of the Company’s required covenant (ironically to the level at which DHT would be permitted to issue further dividends), and without receiving any concessions from its lender.
This past performance suggests that additional expertise and oversight at the Board level would benefit DHT and its stockholders. Therefore MMI strongly urges the immediate addition of Robert N. Cowen to the DHT board. Bob Cowen has over 30 years of experience in the oil tanker and dry bulk shipping business, having been Chief Operating Officer of DHT’s former parent company, OSG, and Chairman and Chief Executive Officer of OceanFreight Inc., a dry bulk shipping company for which he led its successful IPO and fleet start-up. The future opportunities afforded by the current industry weakness and the challenges presented by DHT’s escalating costs, both corporate and operating, require seasoned operational leadership which could augment the Board’s largely finance-related backgrounds. We believe Bob Cowen’s experience, intelligence and business acumen are well-suited to DHT’s challenges and opportunities, and that he would be a great asset to the Board.
We recommend expansion of the Board in part because of management’s comments on the February 16th, fourth quarter of 2009 earnings call, which suggest to us that they may not share stockholders’ frustration with the performance of DHT’s shares. Notably, Chief Executive Officer Ole Jacob Diesen’s remark that “…If we were to buy back shares, the share price has to be even lower” indicates an astounding belief that the stock is presently over-valued. We believe this is completely inconsistent with the facts. As we demonstrate in the attached “DHT Peer Valuation”, DHT’s stock price is presently at a 75% or greater discount to its value at its peers’ average multiples of 2010 and 2011 EBITDA, i.e. an implied stock price of approximately $6.16-$6.41 (versus $3.52 on 2/26/10) were it valued like its peers. On a net asset value basis (using management’s last estimate of DHT’s fleet value, $400 million) DHT is trading for less than its fleet value on an unchartered basis, despite the roughly $100 million at least in free cash flow to be collected by DHT through 2012 when the charters begin to roll off. This is in spite of the premium-worthy stability of DHT’s free cash flow generation from the long-term charters, and assumes virtually no additional hire in the next two years from improvement in rates. However, if market conditions continue to improve such that DHT does earn additional hire or fleet values rise, we believe the preceding valuation estimates will prove to be far too conservative.
In the six months since DHT eliminated its dividend its stock has dropped -30.7% whereas the average total return of its peers is +19.5%. We believe investors, many of whom chose DHT for its fundamental stability, have suffered more than enough capital loss and income disruption in service of a strategy so opaque and ill-communicated as to suggest there is no real strategy at all. We urge the immediate appointment of Mr. Cowen to the Board and reinstatement of the dividend to encourage strategic stability and focus and improved stock performance. Please inform us of your intentions regarding these two proposals by March 12, 2010. Mr. Cowen has indicated to me that he is available to discuss these issues with you, as are we. Please contact me at (212) 586-4333 with any questions.
1 Company press release, 1/4/08, “Double Hull Tankers, Inc. Sets Dividend Policy to a Fixed Annual Amount of $1.00 per share”
2 Calculated as DHT consensus 2010 free cash flow divided by market capitalization of $171 million on 2/26/10. All references herein to stock price, performance, valuations and yields refer to DHT’s closing price of $3.52 on 2/26/10.
MMI’s DHT Peer Valuation
(Click to enlarge)
MMI’s DHT Dividend Analysis
(Edited to fit space)
Here is the press release announcing the resignation of DHT’s Chief Executive Officer, Ole Jacob Diesen, on Thursday last week:
DHT Names Board Member Randee Day Acting Chief Executive Officer
ST. HELIER, CHANNEL ISLANDS, Mar 11, 2010 — DHT Holdings, Inc. (NYSE: DHT) announced today that Board member Randee Day has been named acting Chief Executive Officer of DHT Holdings, Inc. and DHT Maritime, Inc., effective April 1, 2010. Ms. Day will remain on the Board of Directors of both companies, but will not continue on the Audit, Nominating and Corporate Governance, and Compensation Committees.
Ms. Day succeeds Ole Jacob Diesen, who will step down as Chief Executive Officer on March 31, 2010. Mr. Diesen, who has been CEO since DHT’s initial public offering in 2005, was instrumental in developing DHT Maritime’s existing operating platform and the new corporate structure announced last week. This transition follows a comprehensive review of DHT’s strategy by the Board and management beginning in 2009. The Board and Mr. Diesen concluded it would be in DHT’s best interests to turn to new leadership as the Company pursues a more growth-oriented strategy going forward. Mr. Diesen will continue to work with DHT as a consultant for the next six months.
The DHT Board of Directors will conduct a search over the next few months for a permanent CEO and will evaluate both internal and external candidates. Ms. Day has indicated she would be a candidate for this position.
Erik A. Lind, Chairman of the Board of Directors, said, “We are indeed pleased that Randee Day has accepted our offer to become DHT’s acting CEO. Her distinguished career in the shipping industry spans nearly 35 years, and she is one of the industry’s most highly regarded financial executives. Throughout her career, she has demonstrated strong leadership qualities, both as a business originator and the initiator of innovative financial solutions. We are confident she will successfully advance the strategic objectives and growth plans endorsed by the Board. Her appointment follows the recent creation of a new holding company structure and the appointment of veteran shipping executive Einar Michael Steimler to the Board, both important steps in the company’s evolution.”
Randee Day said, “I am very pleased to serve DHT in this position at this important juncture in the Company’s evolution and am committed to executing on our strategy. With DHT’s stable cash flows, proven ability to access the capital markets, strengthened balance sheet and financial flexibility, I believe it is well positioned to capitalize on prudent growth opportunities that are available to those able to deploy capital in the current shipping market.”
Ms. Day has served as a board member and Chair of the Audit Committee of DHT Maritime since the company’s initial public offering in 2005. Since 2004, she has been Managing Director and Head of Maritime Investment Banking at the Seabury Group, a global advisory and investment banking firm for transportation companies. Before joining Seabury, Ms. Day was CEO of Day and Partners, a strategic advisory and restructuring firm that she founded with UK private investors in 1985. Prior to the formation of Day and Partners, she headed up JP Morgan’s Shipping Group in New York.
She has been a board member of TBS International Ltd, since 2001, and serves as the Chair of the Audit Committee and is a member of the Governance Committee. From 2008 to 2009, she served as a director of Ocean Rig ASA, Oslo, Norway. Ms. Day holds a Bachelor of Arts degree in International Relations from the University of Southern California.
Here is the press release announcing the appointment to the board of Einar Michael Steimler:
DHT ANNOUNCES THE APPOINTMENT OF A NEW DIRECTOR
ST. HELIER, JERSEY, CHANNEL ISLANDS, March 4, 2010 — DHT Holdings, Inc. (NYSE:DHT) announced today that it has appointed Einar Michael Steimler to its board of directors. The appointment of Mr. Steimler as a director, which expands the board from three to four independent directors, results from a rigorous process to identify prospective directors that will add valuable experience and insight to the board. Mr. Steimler is expected to join the company’s Audit, Compensation and Nominating and Corporate Governance Committees. This appointment will enable the board of directors to augment its commercial, operational and industry specific experience, particular within the tanker sector, where Mr. Steimler is a highly respected and well known industry executive.
Mr. Steimler, age 62, continues to serve as chairman of Tanker (UK) Agencies, the commercial agent to Tankers International, managers of the world’s largest VLCC pool. He was instrumental in the formation of Tanker (UK) Agencies in 2000 and served as its CEO until end 2007. Today, the Tankers International pool operates 41 ships including those of some of the world’s largest tanker companies.
Since 1998, Mr. Steimler has served as a Director of Euronav. From 1999 to 2003, he also served as a Director of EXMAR, a CMB Group company. During his long shipping career, he has been involved in both sale and purchase and chartering brokerage in the tanker, gas and chemical sectors and was a founder of Stemoco, a successful ship brokerage firm that was sold in 1994. He graduated from the Norwegian School of Business Management in 1973 with a degree in Economics.
The initial term of Mr. Steimler’s appointment to the DHT board of directors will expire at the company’s 2011 annual meeting.
Together with the company’s recent creation of a new holding company structure, the appointment of Mr. Steimler to the DHT board of directors represents a continuing step in the company’s ongoing initiatives to identify attractive growth opportunities.
The company also notes the receipt of communication from certain of its shareholders regarding the company’s strategy. As always, the company’s directors and management value the input of all of the company’s shareholders regarding the company’s direction and will continue to engage constructively with our shareholders regarding such input.
Hat tip Ben Bortner.
[Full Disclosure: I do not hold DHT. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]