Hello, and thank you for joining. Welcome to today's conference call to discuss the all-stock merger of Star Bulk and Eagle Bulk Shipping. At this time, all participants have been placed in a listen-only mode. The call will be open for your questions following the prepared remarks. As a reminder, this conference call is being recorded, and the press release and slide presentation regarding the transaction are available at the investor relations section of each company's website. The archive replay can be accessed there following the call. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on slide two of the presentation. I'll now turn the call over to Petros Pappas, Chief Executive Officer of Star Bulk. Please go ahead.
Thank you, and good afternoon, everyone. With me on today's call is Gary Vogel, CEO of Eagle Bulk, and additional members of both management teams. This transaction is a milestone for both of our companies. We will start with a review of the key elements of the transaction, and then Gary and I will discuss the strategic and financial benefits of this merger in more detail. Please turn to slide 3. This transaction will create a global leader in dry bulk shipping with a large, diversified, and scrubber-fitted fleet of 169 vessels. We believe the transaction will increase our ability to serve our customers with proven technical and commercial management expertise and deliver significant cost and revenue synergies to our shareholders. Both companies intend to maintain their capital allocation strategies and dividend policies until close.
Following the closing of the transaction, the combined company will maintain Star Bulk's dividend policy. Additionally, the combined company will be an attractive investment platform with greater scale, facilitating increased share liquidity, making it more appealing to large shareholders looking to invest in dry bulk shipping. Moving on to the terms of the transaction. This is an all-stock transaction and NAV-to-NAV basis with a combined market cap of approximately $2.1 billion. Each share... Eagle shareholders will receive 2.6211 Star Bulk shares per share of Eagle. After closing and conversion of the outstanding Eagle Bulk convertible, Star Bulk shareholders will own approximately 71%, and Eagle shareholders will own approximately 29% of the combined company on a fully diluted basis.
As for leadership, post-close, I will continue to serve as CEO alongside the current Star Bulk management team and select executives of Eagle. We will add one current Eagle director to the Star Bulk board. We will maintain Star Bulk's headquarters in Greece, as well as offices in key locations around the world. The combined company will operate under the Star Bulk name. Finally, we expect to complete the merger in the first half of 2024, subject to approval by Eagle shareholders, regulatory requirements, and other closing conditions. Let me now turn it over to Gary to say a few words.
Thank you, Petros. I echo your enthusiasm about this transaction and the excitement for the value we can unlock together. At Eagle, we've worked diligently to build a best-in-class active management commercial operation while remaining focused on a safe and efficient operation. At the same time, we've maintained a disciplined approach to capital allocation and a commitment to driving long-term shareholder value. Star Bulk shares these same principles. In addition to a 17% premium, importantly, this transaction provides Eagle shareholders with the opportunity to participate in future upside through sizable ownership in the combined company. The combined company's scale and earnings power positions it for growth and value creation. As Petros mentioned, the combined company will remain committed to returning significant capital to the shareholders and will have greater trading liquidity and enhanced prospects for growth.
From Eagle's perspective, we're excited to bring our active management approach to the combined company and benefit from Star Bulk's best-in-class operations. The integrated platform of the combined company is what will tie our capabilities together and unlock greater value for all of our stakeholders. I'd like to thank my colleagues for their hard work and dedication to our customers and our company. With that, I'll turn the call back to Petros.
Thank you, Gary. Please turn to slide number 4. At Star Bulk, we have been focused on growing the company in order to improve our shareholders' liquidity. With a substantially higher market capitalization as a combined company and the share repurchase from mostly completed, we will further increase our size while growing trading, liquidity, and flow. We will also be the largest U.S. listed dry bulk shipping company in terms of vessel count. Please turn to slide 5. Star Bulk has been actively renewing its fleet, focusing on reducing average age and improving fleet efficiency. By merging with Eagle, we will bring together the scrubber-fitted fleets of 2 best-in-class operators.... With Eagle's 52 Supramax and Ultramax vessels, the combined company will have 169 owned vessels.
Key to our combined fleet is that 97% of the vessels are equipped with scrubbers, which will further differentiate the company and offer a key competitive advantage in our industry. Please turn to Slide 6. The combined teams will work hard to create the best-in-class operating platform, focusing on cost efficiency, commercial synergies, and the needed investments to tackle the decarbonization challenge of the future. The management team will remain committed to efficiency without sacrificing health, safety, and environmental protection. As Gary mentioned, Eagle's active management platform consistently delivers TC outperformance in the Ultramax, Supramax sector. By combining our platforms, we have the potential to improve upon utilization and commercial performance in that vessel segment. A critical pillar of both companies' ship management centers around safe, secure, and quality operations.
Star Bulk is consistently rated at the top amongst our listed peers in terms of RightShip safety score, and the combined entity will continue to enjoy a leading sustainability position. Star Bulk and Eagle are focused on deploying carbon emissions reduction technology, and this will remain core to Star Bulk moving forward. Please turn to Slide 7. Given our respective assets and operational expertise, we have forecasted at least $50 million in annual cost and revenue synergies within 12-18 months following close. We're a leader in average daily OpEx and believe there is an opportunity to bring additional efficiency through this combination, including from benefits due to economies of scale. We will take advantage of our scale and know-how to reduce drydock costs in the future. The sophisticated commercial operations of Eagle will allow us to increase the revenues of the Star Ultramax, Supramax fleet.
This is in addition to substantial cost savings through reduction of duplicative public company costs. Please turn to Slide 8. This synergy potential will strengthen the company's financial position. Together, Star Bulk and Eagle have total liquidity of nearly $420 million as of the third quarter, a considerable step change in our cash position on a standalone basis. The company will also have a strong balance sheet with approximately 37% net leverage. Combining Star Bulk and Eagle will cement our position as a leader in dry bulk shipping for years to come and will create additional value through scale, efficiency, and financial strength. We're excited to begin planning for the integration of the two companies to achieve these compelling synergies and deliver on our capital return goals.
We thank all of our colleagues, contractors, and crew members for their hard work and commitment to health, safety, quality, and environmental protection, which enables us to provide world-class service to our customers. With that, we will open the call for questions.
At this time, if you would like to ask a question, please press the star and 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, please press star one. Our first question will come from Amit Mehrotra with Deutsche Bank. Please go ahead.
Hey, good afternoon, Petros and Gary. This is Chris Robertson on for Amit. Thanks for taking our questions.
Hi, Chris.
Hi, Chris.
Yeah, guys, could you just remind us of the current total cash breakeven level, what you expect that to be pro forma after the combination? And assuming that you're able to realize the cost saving synergies, where do you think that shakes out in the future?
Thank you, Chris. So I'll talk for Star Bulk at the beginning. At Star Bulk, our all-in breakeven cost comes to approximately $12,000 per day, and that basically includes OpEx of $4,800 per day, G&A of about $1,000 per day. Then we have a drydock provision of around $700 per day. And then we have interest and debt principal cost, which in total amounts to approximately $5,500 per day. Now, it is our hope that and goal that post-closing and after a certain period we will try to align the OpEx also for the Eagle Bulk fleet and bring it close to the Star Bulk or average operating cost.
Furthermore, given that we will be adding 52 vessels in our platform, we will work hard to actually reduce the overall cost, OpEx cost for the combined company.
Got it. Makes sense. Just, I guess, given that both companies have, you know, relatively good scale here, just in terms of that $50 million synergy number, can you break that down? How much of that is assumed to be coming from the revenue side, from the Eagle platform, versus how much in actual cost savings?
Well, so in terms of breaking down the synergies, I think you probably will have to wait till we file a proxy statement, you know, where we will lay that out in more detail. But the large majority of the synergies are reductions in cost per ship per day. That doesn't necessarily mean reductions in total cost, but, you know, more efficiency from greater scale. There will be, we believe, some revenue synergies, but it's, it's, you know, the relatively small minority.
Okay, that's helpful, Hamish. One last question from us. Can you just talk about the longer-term strategy here in terms of the net leverage and the dividend strategy? I mean, 37% net leverage is still relatively low. Is there any chance or goal to get to net debt neutral or zero over time?
Yeah, our goal is to reduce leverage over time, and, you know, we have been reducing leverage over time. You know, as you're undoubtedly aware, both we and Eagle took advantage of an opportunity to, you know, basically retire some of our shares below NAV. And, you know, that we think was a good opportunity to take, and that increased the leverage of both companies, not dramatically, but somewhat. And, you know, I think we're going back to reducing leverage over time.
I actually wanted to add a little bit on the synergies on the commercial side of all present Supramaxes. We all know that these type of vessels has a number of charters from various ports to various other ports, and therefore, and a bigger number of Supramaxes will allow us to get to have more vessels closer to the load port, which we should be able to to reduce to improve the average income. And of course, we will leverage a lot on the expertise of Eagle on this sector.
Yeah, this is Gary. Maybe I'll just add to that. You know, in the active owner, you know, operator, you know, world, having more ships in a given area like the US Gulf over a period of 10-12 days gives us more opportunity to arbitrage between cargoes and using ships that are closer to load ports and what have you. So we think the incremental scale going from 52 to 80 Supramax, Ultramax vessels is really a step change in our ability to really extract more value on a per ship basis.
Yeah, I fully agree with Gary on this.
All right, guys. Well, congratulations on this announcement. It's, it's very positive for the space, I believe, and we'll turn it over.
Thank you.
Thanks, Chris. Thank you, Chris.
Our next question will come from Omar Nokta with Jefferies. Please go ahead.
Thank you. Hey, guys, good, good afternoon, good evening. Yeah, congratulations also from us on getting to this point. Obviously looks like a, you know, real opportunity to create a, you know, behemoth in the dry bulk space. I did want to maybe ask, and you sort of, like, touched on this already in the presentation and in Chris's question, but just in terms of the future and say, for Star Bulk, is there any shift in strategy in how you operate the business, whether it's any sort of change in capital allocation? You obviously mentioned the leverage is fine, could go lower if you wanted.
But in terms of maybe what Gary's team brings to the fold, a bit more of a trading element, is that something that you can see Star Bulk adopting kind of fleet-wide across the nearly 170 ships? Or do you kind of intend to maybe focus more of the trading within the size, the Supramax segment?
So let me start with the capital allocation. Capital allocation policy is going to stay the same as Star Bulk's capital allocation policy. So, you know, you can basically count on that. Let Petros Pappas talk about, you know, actually the strategy of running the business.
On the Supramax side, we may change a bit our strategy and follow Eagle's strategy on fixing vessels on voyage basis as well as on charter basis that we do today. But there is no major change of strategy overall, and it isn't that is a focus on Supramaxes. If we find at some point a company that has Capes or Panamaxes, we could also proceed and merge with them. But we thought that it was an important move for us because size matters, and as we said before, we think we'll improve our G&A, our OpEx. We think that we will improve our performance on the smaller size.
But as I said, this is a merger with a Supramax company, but we don't rule out mergers with companies that actually manage bigger vessels in the future.
Got it. Thanks, Petros, and thanks, Hamish. Maybe just wanted to ask just some sort of the particulars of the transaction coming together. Do both sets of shareholders need to vote on this? Or, that's one question, and is it just a simple majority needed for approval?
So, the Eagle shareholders will need to vote, and 50% of the shares need to vote in favor. The Star shareholders do not need to vote. So, you know, it will be just the one vote that's required, and as you say, a simple majority.
Okay. Then, you know, I have to ask, but, you know, clearly, you know, Eagle has, you know, two major shareholders, any thoughts on where they stand, any conversations that that you've had with them on, on this deal?
Um-
Yeah, this is Gary. Go ahead. I mean, maybe I'll start. This is Gary. We just announced this, you know, an hour ago. But having said that, I don't. I'm not gonna get into discussions, you know, with individual shareholders. But we do believe that, you know, this transaction is in the interest of all of our shareholders, and I think the value proposition of creating the largest listed company, and the synergy value proposition, we think all of our shareholders will see the value of that and supporting this transaction.
Well, very good. Thanks, Gary, and thanks, guys. Congrats again.
Thank you.
Thanks so much.
Thank you.
Our next question comes from Nathan Ho with Bank of America. Please go ahead.
Hey, good evening to you. Congratulations on the deal. I guess my first question is just on the fleet renewal side, and maybe just give us an update on how the fleet would look as the pro forma combined entity, age-wise, and how you're thinking about potentially managing that in the future. Are we gonna maybe see a shift from a more acquisitive kind of stance to maybe a more disposal-driven?
Our average age, I think it's around 11 years, and Eagles is around 10 years or so, or a bit less. So the average of the new fleet is going to be about 10.5 years. Going forward, please note that we have ordered 3 Capesize newbuildings, plus we have 7 chartered in newbuildings, that 6 of which we will be taking delivery of this year. So these are the immediate plans. Going forward, we will see how things go. We do not yet know which is the fuel of the future, and depending on developments, we will formulate our strategy.
Perfect. Thank you. And maybe just a follow-up on the cost synergy side, and NAV to NAV kind of transactions. And given the fact that as a combined fleet, it's 97% scrubber fitted, would you mind just giving us a little bit more on where exactly you see that kind of cost upside? Are there potentially benefits on the financing side for us to also think about?
Yeah, there, there are a lot of combined synergies, right? You know, it's, it's, you know, Star Bulk's operating costs per vessel per day is, is quite low and, you know, among the lowest in the industry, and we think we can bring that, benefit to the Eagle fleet. You know, by growing the fleet, you inevitably reduce, overhead, you know, G&A per ship per day, you know, simply because you're not increasing the cost of the management operation as fast as you're increasing the fleet. And, you know, we, we also believe that we will save money in dry docking, because of the larger fleet. We'll save some money in operating expense of our existing fleet because of the, the, the larger, you know, the, the, the larger fleet and, and our market power.
Of course, then, you know, we think there will be revenue synergies, where, you know, we take advantage of Eagle's commercial operation. Did that get at what you were trying to get at?
Sure, that helps. Thanks, Hamish. And I think there was also a mention about potentially being open to future opportunities for larger managers, well, managers of larger ships. Maybe talk about how you see your ship count trending over, say, like, the next few years. Obviously, this puts you in the leadership position within the dry bulk in dry bulk space. Well, should we expect, I guess, a continued focus on expanding the scale and sort of driving further benefits through these-
... similar synergies and similar, similar opportunities?
Well, look, I think we're always looking at growth, but I think this is a meal we're going to have to, you know, digest for a while. We wanna make sure that we preserve the best of Eagle and combine it with the best of Star. You know, we don't wanna bite off, you know, more than we can chew, basically. But, you know, I think over time, we will try to grow.
Perfect. Thank you so much.
Our next question will come from Sherif Elmaghrabi with BTIG. Please go ahead.
Hey, thanks for taking my question. Just one from me. The deal's closing in the first half of next year. What drove the decision to keep Eagle's dividends? Isn't that one or two quarters of cash that could be added to Star Bulk's liquidity position, post-deal?
Well, you know, Gary, do you wanna talk about that?
Yeah, sure. Sure, I mean, I think it's important to state that until the approval, and more important, until the closing, right, that these companies will operate as Eagle and as Star Bulk. And so we each have dividend policies that we intend to return capital to shareholders. So I think it would be, you know, inappropriate, let's say, to stop that from Eagle prior to the merger. And so, you know, our shareholders are able to count on our policy, which is clear, concise, and I think the same could be said for Star Bulk as well.
Okay, thanks very much.
Sure.
Our next question comes from Liam Burke with B. Riley. Please go ahead.
Yes, thank you. I know you can't get into the more detail, and you're pretty much limited to the press release, but how far along have you gone to filling the management positions with the combined Eagle and Star Bulk management teams?
You know, we're really only just, you know, beginning the process. And, you know, I think, we're gonna combine the best of both companies, and, you know, we're gonna be working with, with Gary and his team at Eagle to figure all that out.
Okay. And was there any thought to putting a collar on the all-stock deal, or you're comfortable with just the current ratio here?
You know, this is a situation where I think both we and Eagle are pretty sure of what our companies are worth. And, you know, we didn't see the need to put a collar on the share prices, you know, because basically we have a high confidence that we understand the value ourselves.
Good. Thank you, Hamish.
As a reminder, to ask a question, please press star one. Our next question comes from Poe Fratt with AGP. Please go ahead.
Good evening. I have two areas that I'd like to ask questions. One is, if I do the back of the envelope calculation on the difference between Eagle Bulk's cost structure and Star Bulk's, I'm coming to about $1,200 on OpEx that you might be able to save, and then about $900 or maybe even $1,000 on the G&A side. So, you know, total cost savings of about, you know, just over $2,000, I guess, $2,250 a day. That would lead me to, you know, calculate the total cost savings just on the G&A and OpEx in the $42-$43 million range. Can you just comment on whether that's in the ballpark?
Well, I mean, I think we've disclosed that we think that total synergies are gonna be at least $50 million. So, you know, you're, you're in the right order of magnitude.
And then, Hamish, if you could talk about the dividend policy. As I recall, there's a cash reserve per vessel that you have before you actually calculate what dividend you're gonna pay out. And intuitively, with the larger fleet, I would think that you might be able to lower that cash reserve per vessel moving forward as you look at your dividend policy. Any thoughts on that?
Well, I mean, you know, that's a question of whether we wanna open up that, you know, debate with our board again. You know, our board, you know, put a lot of thought into the cash reserve, and I don't think we're gonna change it anytime soon, but that is always something that the board can do.
Okay, great. And can you just talk about how you calculated, or maybe how you calculated the ratio, you know, 2.6211 ? If I look at the, you know, last 12 months, it looks like Eagle's traded at an average of about 2.4 times Star Bulk shares. Can you just talk about, you know, how you calculated the ratio?
Sure. I mean, basically, we think we understand what our ships are worth. We think we understand, you know, what liabilities we've got. This is true of both companies. And, you know, we were pretty confident that we could set a fair exchange ratio between us without reference to trading history. You know, because frankly, the public markets, we think much of the time, do not really understand, you know, the values of dry bulk companies. We do hope to change that through being large enough to make it more efficient for people to spend the time to understand the value. You know, that's one of the benefits of large size.
Great. Congratulations, and thanks for your time.
Thank you.
Thank you.
Thank you. We have no further questions in queue at this time. I'll now turn the call back to Petros Pappas for any additional or closing remarks.
No further remarks, operator. Thank you very much, and good night.
This does conclude today's call. We thank you for your participation. You may disconnect at any time.