HAFNIA’s failed bid for Ardmore has been described as an attempted “takeunder” by the chief executive of the target company.

A deal would have created the world’s largest product tanker operator, with a fleet of 210 vessels.

But Ardmore head Anthony Gurnee told Lloyd’s List the approach raised company valuation disparities.

The fallout has played out in public this week with Oslo-listed Hafnia and New York-listed Ardmore sharing their own evaluations of the deal in efforts to entice or explain themselves to shareholders.

Ardmore’s board unanimously rejected the all-stock offer made for its 25 medium range chemical and product tanker operation on June 19.

It also decided that the bid did not even serve as a foundation for further negotiations with BW-controlled Hafnia, leaving little room for manoeuvring.

Hafnia chief executive Mikael Skov, however, said he continues to believe shareholders of both companies would benefit from a combined entity.

Hafnia, which owns a fleet 88 product tankers and operates 184, has estimated that together the two firms could achieve between $15m and $20m in annual synergies.

“You cannot force other people’s hand,” Mr Skov said in an interview. “We have to respect that other people have different views.”

The projected synergies was not enough to convince Ardmore’s board that this is something worth considering as Hafnia's valuation assessments were dissuading. 

Ardmore said Hafnia was being “highly opportunistic” and had “substantially undervalued” the New York-listed firm; its offer implied a $3.87 per share price payout, an approximate 18% discount of the actual share price on June 19, 2020, the day it was made.

The offering price also marked a discount of over 28% to the volume weighted average share price of Ardmore over the 30 days prior to the proposal.

“When somebody offers a takeover price that is below your current trading price that is called a takeunder and it almost never works,” Mr Gurnee said.

Ardmore shareholders would get 17.9% of the merged company, which Hafnia said would trade on both the Oslo and New York stock exchanges. It estimated a combined $1.5bn net asset value, the total price of the ships minus the debt.

But Ardmore said the proposed exchange ratio of 2.4 Hafnia shares for each Ardmore share was “materially below” the implied exchange ratio of June 19 closing share prices of each of the two companies, which it reported as 2.925. It was even worse when considering the volume weighted average share price of the 30 days prior to the offer.

Mr Gurnee stressed that Hafnia’s offer effectively values Ardmore at $129m, less than half of the $270m, which it estimates to be its NAV.

Mr Skov did not comment on Ardmore’s response to the offer nor did indicated whether there would be a revised bid.

“We saw the value and we still feel shareholders of both companies will have a much better company in a merged entity,” he said. “In order for this discussion to go anywhere we need to see willingness from the other side to engage in that discussion. And if they are not willing to do that then there is no basis for that discussion.”

An investment banking source said that if the offered exchange ratio was closer to three Hafnia shares per Ardmore share, rather than the proposed 2.4, things could have turned out differently.

“If we compare the three-month share price exchange ratio, the average is around 2.95 versus the offer of 2.4, which implies that Hafnia was looking for a bargain,” they said. “It comes to no surprise that Ardmore rejected the offer.” 

Jefferies analyst Randy Giveans also said that while Hafnia’s letter made the offer appear “great”, Ardmore’s assessment made it clear this was a “low ball offer”, trying to get shares below trading value and further below NAV.

“It made a lot more sense why they shied away and turned from the deal than trying to do it,” he said.

Clarksons analyst Omar Nokta wrote that the lack of cash in Hafnia’s offer was a likely issue for Ardmore and suggested that adding that in the deal would help bridge the gap in the valuation of the companies' shares.

“While a cash offer seems unrealistic, a higher share of the combined entity would need to be offered in our opinion to garner a more significant response from Ardmore in our view,” he said in a note.