Greetings, and welcome to today's conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. Please note that this conference call is being recorded. At this time, I'd like to turn the conference call over to Stefan Neely of Vallum Advisors. Mr. Neely, please proceed.
Thank you, Todd, and good morning, everyone. Thank you for joining the call this morning to discuss the merger of Pangaea Logistics Solutions dry bulk vessel fleet with 15 dry bulk vessels owned by Strategic Shipping Incorporated, or SSI, which was announced in a press release yesterday afternoon. Leading the call with me today is Pangaea's Board Chairman, Rich du Moulin, CEO, Mark Filanowski, Chief Financial Officer, Gianni Del Signore, and COO, Mads Petersen.
Today's discussion contains forward-looking statements about business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the line for questions. To supplement today's discussion, we have also provided a presentation which can be found in the investor relations portion of our corporate website at Pangaeals.com/investors. With that, I would like to turn the call over to Rich.
Thank you, Stefan. Good morning, everyone, and welcome to today's call. I've been on the Pangaea board since we went public in 2014 , and I've been chairman since our founder, Ed Coll, passed away in 2022 . This is a special day for Pangaea. This transaction is our largest step to date as we pursue our unique logistics strategy. Strategic's 15 Handy bulk carriers expand our fleet offering from our Post-Panamax, 96,000-ton ice-class bulkers down to 33,000 deadweight Handys. It also creates more opportunities to secure cargo contracts utilizing our shoreside operations. I congratulate CEO Mark Filanowski and his management team, led by COO Mads Petersen and CFO Gianni Del Signore. Their counterpart in Strategic is Dan Schild, who will be joining Pangaea as Chief Strategy Officer.
I also welcome Doug MacShane and Christina Tan as major Pangaea shareholders, and Christina and mutual friend Gary Vogel onto the Pangaea board. This is made possible by mutual respect based on long-term friendships. I'm now pleased to turn over this call to CEO Mark Filanowski, my friend and business associate for 35 years. Mark?
Thanks, Rich. I hope everybody listening is having as bright a day as we're having here in Newport, Rhode Island, both literally and figuratively. As Rich discussed, last night, we announced we're adding 15 modern Handy vessels to our fleet as a result of an all-stock transaction with MT Maritime Management, or MTM, bringing our total dry bulk fleet count to 41 vessels. MTM's dry bulk fleet is known by Strategic Shipping, Inc. brand and is based in Southport, Connecticut, about two hours from Newport, near Stamford, Connecticut. SSI and MTM have been in the shipping business since 1980, and they have a long history of success as dry bulk and tanker vessel operators.
Doug MacShane and Christina Tan, who operate MTM, are both veterans in the shipping industry, and we're excited for their support and partnership as we enter this new chapter of growth for Pangaea. We've seen consolidation in the dry bulk shipping scene in recent years. Scale is important for efficiency and proficiency in an increasingly complex shipping world, and it's important for public companies to continuously try to increase market capitalization. But this transaction is more than scale for us. Pangaea's business thrives on differentiation. We differentiate ourselves by working with customers in their supply chain requirements, and we form long-term relationships and long-term contracts with them. We follow customers where they need services we can provide.
It might be in operations above the Arctic Circle or with difficult cargo that requires special treatment or loading, discharging, or storage ashore, or a dedicated ocean shuttle service we invest in and operate. The addition of Handy ships to our portfolio will allow us to aggressively pursue more opportunity in the same way. We haven't owned a Handy vessel in years, but we operate in this segment today through occasional charters in. The acquisition of 15 ships in this segment puts us in a strong position to further complement our Supramax and Ultramax fleet vessels with our existing customers and new ones that move cargo in different sizes. Adding 15 ships in one swoop would be a difficult task for any owner. We're fortunate to be adding an experienced team from Strategic that we think will immediately mesh with the Pangaea team.
We'll learn a lot from each other about best practices in difficult trades. As Rich mentioned, Dan Schild, MTM's Senior Vice President of Dry Cargo and Strategic Planning, will become Pangaea's Chief Strategy Officer. Christina Tan, MTM's Chief Executive Officer, and Gary Vogel, who's another veteran of the shipping industry and needs no introduction, will serve on our board of directors after the closing in December. The ships we're taking on average less than 11 years in age, matching our own average, are built with efficient designs and good yards in China, Korea, and Vietnam, and average about $19 million each in value. The transaction, which is valued at approximately $295 million, inclusive of vessel-related financing agreements of approximately $102 million, will be a non-cash transaction funded through the issuance of approximately 19 million shares of Pangaea's common stock.
The share issue is determined by the relative fair value of assets acquired compared to the value of Pangaea's balance sheet net assets, as adjusted to reflect fair values of our fleet and reflects a NAV of about $10 per share of Pangaea common stock. On completion of this transaction, SSI and MTM will own approximately 29% of Pangaea's common stock, making them our largest shareholder. The MTM team's decision to partner with and invest in Pangaea is a testament to their belief in our strategic vision and differentiated business model. We're humbled, and we're proud of their faith in us. In an environment where vessel new build activity remains limited and asset values are elevated, we believe that this transaction represents an attractive return opportunity for all parties.
We're excited for the opportunities ahead of us as we enter this new chapter in our growth, and we're really excited to welcome all of the SSI team to the Pangaea family. With that, it's over to Gianni.
Thank you, Mark. I want to start by reiterating our excitement for this pivotal acquisition for Pangaea. This accretive transaction not only enhances our overall financial position, but creates an attractive platform for profitable growth going forward. In aggregate, the transaction is valued at approximately $295 million, which will include approximately $102 million of vessel-related financing agreements, resulting in total net asset value acquired of $193 million. As Mark mentioned, the transaction will be funded through the issuance of common stock. The number of shares issued is expected to be approximately 19 million, equal to approximately 29% of the company's outstanding common stock upon completion of the proposed transaction.
This represents the relative net asset value of SSI's vessels compared to the estimated net asset value of Pangaea of approximately $478 million or $10.20 per share. Ultimately, the consideration will be determined based on the proportion of SSI's fleet net asset value as compared to Pangaea's balance sheet net asset value, adjusted for the fair value of vessels as of the closing date. Given that this transaction is non-cash in nature, we are substantially maintaining our financial flexibility and providing us ample capacity to further invest in our fleet. The SSI fleet is currently leveraged with approximately 34.6% debt and finance leases.
Importantly, this transaction is expected to be accretive to us going forward from both an earnings and cash flow basis, with the acquired vessels cash flow breakeven expected to be about $9,000 per day for vessel operating expenses and financing costs. On a pro forma annual run rate and assuming market rates consistent with the last 12 months, we would expect this transaction would drive additional adjusted EBITDA of approximately $35 million. The transaction is expected to close in the fourth quarter, pending shareholder approval of the issuance of shares. With that, I would like to open the line for questions.
At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself at any time by pressing star two. Once again, if you would like to ask a question at this time, please press star one. Our first question will come from Liam Burke with B. Riley. Please go ahead.
Thank you. Good morning, Mark. Good morning, Gianni.
Good morning.
Mark, prior to the acquisition, you would have a ratio of chartered in and owned vessels to sort of meet your cargo fit for a strategy, and depending on the cycle, it'd be a rough ratio. Are you going to maintain that same ratio of owned and chartered in vessels?
Yeah, yeah. Thanks, Liam. Thanks for the question. It really goes to the base of our business plan. You know, we own today 26 ships. We're operating a fleet of over 60 or 65 ships today. So we have the capacity, we have the cargo availability. We flex that fleet up and down as needs require. I think over... You're right, over a longer term, it probably our owned percentage probably is 40%-45% of our total fleet we operate. With the addition of 15 owned vessels, yeah, we'll extend our business plan into that segment. So we will operate more Handys around that owned fleet and try to maintain that 40%-50% owned to chartered fleet makeup.
I mean, if I was thinking about it that way, and you added 50% to your own vessels, I mean, that would flex your fleet up and imply a nice step up in charter revenue.
The charter revenue should increase as we put more vessels out. Certainly, I think the 15 ships add about 5,500 shipping days to our capacity. If we add, you know, another 10 chartered-in Handys to supplement that fleet, then shipping days will go up and increase revenue, yes.
So that's what I'm getting at. The incremental chartered-in vessels will drive additional revenue there?
Yes.
Okay.
Liam, if I could just add one point there. I think, fundamentally, I think our strategy is unchanged, right? So we're adding the Handy vessels to our fleet, but it's still, you know, chartered-in vessels are part of delivering our services to our customers. So I think it's fundamentally that focus on both owned and chartered in fleet, I think that remains, will remain the same.
Great. Okay. Thank you, Gianni.
Thank you. As a reminder, if you would like to ask a question, please press star one at this time. Our next question comes from Poe Fratt with AGP. Please go ahead.
Good morning, Mark. Good morning, Gianni, and probably good morning, Mads.
Hello, Poe. Thanks for joining us on the call.
No, thanks for hosting the call. I have several questions, as you can probably imagine, but are there any representatives from MTM or SSI on the call?
They're not participating on the call-
Okay.
- but I think there are some listening.
Mark, you must have a very persuasive, you know, you must be very persuasive. It seems like, you know, MTM is taking stock, you know, valued on the respective NAVs of $195 million, but yet the market value of that stock is, you know, as of last night's close, $126 million. Can you just put some color on how the negotiation, you know, worked and how you were able to cut what looks like such an attractive deal to you?
Poe, I think you have to maybe look at it from both sides. For us, it's an attractive thing to be able to use our shares to get good ships and attract the staff from SSI to help us run those ships. And but you know, I've gotten to know Doug and Christina a little bit, and you know, my personal impression of them is that they're long-term strategic thinkers who are opportunistic. Mr. MacShane maybe said it best. I think maybe if I can take just a little liberty in what he said in his quote in the news release.
He said he's not looking to get out of the business, but he sees value in our business model and in our track record, and the SSI fleet and the people that come to Pangaea with the fleet can complement and supplement our business and give the SSI shareholders value long term, consistent value and consistent returns, so I think that's what everybody's looking for. It's a win-win for both parties.
Great. Yeah, they do get public-
Mark?
They do get liquidity, you know. I'm sorry?
I'm sorry. It's Rich du Moulin. I just might add that we know Doug and Christina have been following Pangaea for a long, long time, including knowing Ed Coll, and they've always had a great respect for the strategy of this company that sets it apart from other companies. And they are very astute investors, and they definitely see the benefits of combining the fleets for long-term value. They're not short-term thinkers. They're long-term thinkers.
Great, that's helpful. And then, Mark or Mads, can you highlight how many Handys you've been chartered in over the last twelve months or so, and will this be, you know, complementary to that existing chartered-in presence in the Handy fleet?
Yeah, thanks, Poe. I don't have the number off the top of my head, but I would say that we are, at any point in time, having one or two or three maybe on charter. And that's been sort of very sort of pretty stable. So that this, the addition of this fleet and not least the people and their experience and their, you know, customer relationships will be, you know, a great boost to that segment of the business. So it's not new for us, but of course, this will significantly enhance our presence in that segment.
Yeah, it's interesting, Poe, that in the middle of all this, you know, most of the people in the office didn't know what was happening, but we had two SSI ships on charter.
Yeah.
We were operating. So we got a good look at those ships, when we had them.
Hopefully, you liked what you saw.
Yeah.
Can you, Mark, I'm sorry. In the presentation, you talk about the potentially there's some synergies on the port and terminals business from this acquisition. Can you just talk about those potential synergies?
. Yeah, we see in the ports and terminals, you know, where we're discharging dry bulk ships, we see more Handys than we do Supras and Ultras. So there's more business potential to put together cargoes on the Handy size, you know, with our ports and our existing ports and terminals anyway, than there is with Supras. We do it with the Supras, but there's more activity on the Handy size.
Okay. And then if I could just, I scanned the merger agreement, and so I might have missed something, but can I just confirm a couple things? One, that the transaction is exclusive, that MTM and SS or SSI cannot go out and go shop this transaction.
That's the way we see it, yes.
Okay. And then the drop-dead date is January 31st, 2025 . And is there any breakup fee or any repercussions if the deal does fall apart financially?
There's a deal around payment of fees for one party or the other if there's a default by the other party, but that's about the extent of the breakup fee.
Okay, more reimbursement of the, you know, money spent.
Yeah.
And then Gianni, on the debt that you're assuming, the $102 million or so. I think you said there were some leases in there. Can you just talk about if there are any near-term maturities on that, that financing?
No, there's nothing significant on that until about 2027. But it's a pretty good runway of repayment and amortization of debt, so there's nothing in the near term, and they're at attractive interest rates, so you know, we'll likely keep them in place and run them out through maturity.
Okay, great. And then it looked like in the merger agreement that you'll issue at least 25%, or I'm sorry, that they'll own at least 25% of the company, but no more than 30%. Did I get that right, as far as, you know, potential for adjustments at closing that would be, you know, result in additional equity issuance?
That's correct.
Okay. I don't have anything else. Congratulations. This looks like really a transformative transaction, Mark, and I congratulate your team.
Thank you, Poe. I'm glad you're happy.
Thank you. At this time, I would like to turn the call back to Mark Filanowski for closing remarks.
Once again, thank you for joining our call. We believe this is a very exciting moment for all of our stakeholders, and we look forward to providing an update on our entire business on our third quarter earnings call in early November. Should you have any questions, please, please feel free to contact us at investors@pangaeals.com, and a member of our team will follow up with you. This concludes our call today. Thanks very much for joining us.
Again, this does conclude today's call. Thank you for your participation. You may disconnect at any time.