SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment
No. 1)
OSG AMERICA L.P.
(Name of Subject Company)
OSG AMERICA L.P.
(Name of Person Filing
Statement)
Common
Units representing limited partner interests
(Title of Class of
Securities)
671028 10 8
(CUSIP Number of Class of
Securities)
James I.
Edelson
General
Counsel and Secretary
OSG
America LLC
Two
Harbour Place
302
Knights Run Avenue
Tampa, FL
33602
(813)
209-0600
(Name, Address and Telephone
Number of Person Authorized
to Receive Notices and
Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
Robert A.
Profusek, Esq.
Andrew M.
Levine, Esq.
Jones Day
222 East 41
st
Street
New York, NY 10017
(212) 326-3939
¨
Check
the box if the filing relates solely to preliminary communications made before
the commencement of a tender offer.
This Amendment No. 1 (this Amendment No. 1)
amends and supplements the Solicitation/Recommendation Statement on
Schedule 14D-9 initially filed with the Securities and Exchange Commission
on November 5, 2009 by OSG America L.P., a Delaware limited partnership
(as amended or supplemented from time to time, including as amended by this
Amendment No. 1, the Statement).
Except as otherwise set forth below, the information
set forth in the Statement remains unchanged and is incorporated herein by
reference to the extent relevant to the items in this Amendment No. 1. Capitalized terms used but not otherwise
defined herein have the meanings ascribed to such terms in the Statement.
Item 3. Past Contacts, Transactions, Negotiations
and Agreements
Item 3 is hereby amended and supplemented as
follows:
1.
The following sentences are inserted immediately after the second
sentence of the first paragraph under the heading Item 3Past Contacts,
Transactions, Negotiations and AgreementsConflicts of Interest and
Transactions with the Bidder and its Affiliates:
The members of the Conflicts
Committee were asked to join the GP Board by Messrs. Arntzen or Itkin on
behalf of OSG in anticipation of the Partnerships IPO in November 2007. The members of the Conflicts Committee have
experience in the petroleum products shipping industry: Mr. Dolphin is a Managing Director and
the President of AMA Capital Partners LLC (AMA), a merchant banking firm in
the United States primarily focused on the shipping industry, Ms. Haines
was the Chief Financial Officer of OMI Corporation, a U.S.-based international
shipping company, prior to OMIs sale for in excess of $2 billion in 2007 and Mr. Benz
is the Chief Executive Officer and President of Marine Spill Response
Corporation, a company dedicated to the cleanup of petroleum and chemical
spills by marine transportation companies.
None of the members of the Committee has been employed by or otherwise
received any compensation or other payments from OSG or any of its affiliates,
except for fees paid for service on the GP Board. Mr. Dolphin was elected Chairman of the
Conflicts Committee by the members of the Conflicts Committee.
2.
The first paragraph under the heading Item 3Past Contacts,
Transactions, Negotiations and AgreementsInterests of the General Partners
Executive Officers and Directors is replaced in its entirety with the
following paragraph:
Executive
Compensation
. Because the Chairman of the GP Board, Morten
Arntzen, the General Partners President and Chief Executive Officer, Myles R.
Itkin, and the General Partners Chief Financial Officer, Henry P. Flinter, are
employees of OSG or OSG Ship Management, Inc. (OSGM), their compensation is
set and paid by OSG or OSGM and the Partnership effectively reimburses OSG for
the estimated time they spend on Partnership matters (which estimated time may
differ from the actual time spent on Partnership matters). Officers and employees of the General Partner
or its affiliates participate in employee benefit plans and arrangements
sponsored by OSG, the General Partner or their affiliates, including plans that
may be established in the future, and do not receive separate compensation or
benefits from the Partnership.
3.
The third paragraph under the heading Item 3Past Contacts,
Transactions, Negotiations and AgreementsInterests of the General Partners
Executive Officers and DirectorsCompensation of Directors is replaced in its
entirety with the following paragraph:
The
GP Board approved the payment of a one-time, non-refundable fee to the
Committee members in light of the fact that a very substantial amount of work
would be required of the Committee and the fact that Committee members are not
paid meeting or per diem fees. The
amounts were $50,000 for each of Mr. Benz and Ms. Haines and $75,000
for Mr. Dolphin, as Chairman of the Conflicts Committee. Jones Day included a provision for the
payment of such fees in the initial draft of resolutions for the GP Board that
such firm prepared to confirm the Conflicts Committees authority in connection
with OSGs initial proposal. A
representative of Jones Day advised the Committee that in his experience the
payment of fees of this nature was customary in the circumstances and that the
amounts proposed were within normal ranges.
Mr. Itkin informed Mr. Dolphin, as the Chairman of the
Committee, that OSG would recommend that such fees be paid subject to
confirmation that they were reasonable in amount. The amounts of such payments were approved in
the summer of 2009 and were payable regardless of the outcome of the Committees
review of any proposal by OSG
.
4.
The following paragraph is inserted immediately after the last
paragraph under the heading Item 3Past Contacts, Transactions, Negotiations
and AgreementsCompensation of Directors:
Mr. Dolphin,
the Chairman of the Conflicts Committee, is a Managing Director and the
President of AMA. Representatives of AMA
have on several occasions since the Partnerships IPO proposed business
opportunities to OSG in the ordinary course of their business at AMA. During this time, OSG has not engaged AMA to
perform any investment banking services or paid AMA any compensation. Mr. Dolphin did not discuss matters
related to the Partnership or Mr. Dolphins service on the GP Board with
any person, including representatives of AMA, except for executives of OSG and
the General Partner, the members of the GP Board and the Committees advisors.
Item 4. The
Solicitation or Recommendation.
Item 4 is hereby amended
and supplemented as follows:
1.
The paragraph under the heading Item 4The Solicitation or
RecommendationDetermination and Recommendation of the Conflicts Committee is
replaced in its entirety with the following paragraph:
The
Conflicts Committee has determined, on behalf of the General Partner and the
Partnership, that the offer of $10.25
per Unit is fair to Unitholders (other than OSG and its affiliates) and
recommends that Unitholders tender their Units to the Bidder pursuant to the Offer.
2.
The following sentences and paragraph are inserted at the end of the
sixth paragraph under the heading Item 4The Solicitation or
RecommendationBackground of the Offer:
Neither
Lazard nor Jones Day has advised the Partnership, the General Partner, OSG Bulk
or OSG within at least the past two years.
Representatives of Lazard have from time to time, in the ordinary course
of Lazards business, contacted OSG on behalf of Lazard clients in connection
with potential transactions involving such clients.
During
November and December 2008, before any proposal to acquire the
publicly owned Units was made by OSG, the General Partner received two
indications of possible interest in acquiring the Partnership. One indicated a desire by a private equity firm
to open discussions regarding a potential acquisition of the Units at an
indicated price of $4.74 per Unit. The
other was received from a principal of AMA on behalf of two other undisclosed
entities that indicated a potential price closer to $12.00 per
2
Unit. The General Partner notified the GP Board of
these indications of interest and solicited the views of the independent
directors on how to respond to the indications of interest. Included in each notification was a statement
that OSG was not interested in pursuing discussions about the sale of its
interests in the Partnership and that the Partnerships US Flag business
represented a long-term strategic holding for OSG. The independent directors reviewed the matter
and concluded that they could take no action in respect of the indications in
light of OSGs unwillingness to even consider the possible sale of its
interests in the Partnership. From time
to time thereafter, including in OSGs July 29, 2009 letter to the
Conflicts Committee proposing to acquire the publicly held Units, OSG
reiterated that it had no interest in selling its interests in the Partnership
to a third party and, as described below, the Committees request for authority
to permit the solicitation of alternative proposals was not granted.
3.
The following sentences are inserted at the end of the 12th paragraph
(without giving effect to this amendment) under the heading Item 4The
Solicitation or RecommendationBackground of the Offer:
Representatives
of OSG and the General Partner negotiated the settlement proposal with AMSC and
the termination agreement with Bender on behalf of OSG and the
Partnership. During these negotiations,
the GP Board, including members of the Conflicts Committee, received periodic
updates on the status of the Bender and AMSC negotiations and the GP Board in
each case approved the settlement proposal and the termination agreement prior
to the Partnership entering into the settlement proposal and the termination
agreement.
4.
The last sentence of the 33rd paragraph (without giving effect to this
amendment) under the heading Item 4The Solicitation or
RecommendationBackground of the Offer is replaced in its entirety with the
following sentence:
See Management Forecast for a discussion of
the updated management forecast and the material assumptions related to it, as
well as for a discussion of the alternative model prepared for analytical and
negotiating purposes.
5.
The 34th paragraph (without giving effect to this amendment) under the
heading Item 4The Solicitation or RecommendationBackground of the Offer is
replaced in its entirety with the following paragraph:
At the September 10th Conflicts Committee
meeting, Lazard also reviewed in detail its preliminary valuation analyses, including
the discounted distribution model, comparable publicly traded companies
analysis, comparable transactions analysis, net asset valuation and premia
analyses, noting that in any set of preliminary valuation analyses, each
preliminary analysis indicates a distinct preliminary valuation range but
cautioned against attributing particular weight to any factor or analysis.
Lazard observed at this and subsequent Committee meetings that the discounted
distribution methodology, unlike the other valuation methodologies (including,
among others, a theoretical discounted cash flow analysis, which is based on
unlevered free cash flows), is determined by calculating future distributions
on a per Unit basis and that securities like the Units trade primarily based on
their present and expected future yields. However, the representatives of
Lazard informed the Committee that they also considered other factors and the
other valuation methodologies to be relevant and reviewed them with the
Committee. The representatives of Lazard noted that, with regard to the
comparable transactions and the net asset valuation analyses, the data upon
which the analyses were based did not reflect current market conditions. There
were no precedent comparable transactions announced since September 2008,
which was when the shipping industry in particular began to experience
pronounced dislocation. In addition, since September 2008, there were no
secondary transactions involving comparable Jones Act vessels and therefore
such data could not be reflected in the net asset valuation analysis. Lazard
also noted that the valuation
3
methodologies that resulted in total equity
value required a methodology to allocate total equity value among multiple
classes of equity for which there was limited precedent. The Committees September 10th meeting
was then adjourned and reconvened on September 11, 2009.
6.
The fifth sentence of the 41st paragraph (without giving effect to this
amendment) under the heading Item 4The Solicitation or
RecommendationBackground of the Offer is replaced in its entirety with the
following sentence:
After considering the factors described in Reasons
for the Determination of the Conflicts Committee below, the Committee unanimously
determined, on
behalf of the General Partner and the Partnership
, that the offer of $10.25 per Unit is fair to Unitholders (other than
OSG and its affiliates), from a financial view, as of September 24, 2009.
7.
The last sentence of the last paragraph under the heading Item 4The
Solicitation or RecommendationBackground of the Offer is replaced in its
entirety with the following sentence:
Based upon the foregoing, the Committees prior
deliberations with respect to this matter and the matters discussed in Reasons
for the Determination and Recommendation of the Conflicts Committee below, the
Committee unanimously determined, on
behalf of the General
Partner and the Partnership
, that it
should recommend that Unitholders tender their Units to the Bidder pursuant to
the Offer.
8.
The first sentence of the first paragraph under the heading Item 4The
Solicitation or RecommendationReasons for the Determination and Recommendation
of the Conflicts Committee is replaced in its entirety with the following
sentence:
In reaching its determination, on
behalf of the
General Partner and the Partnership
,
that the offer of $10.25 per Unit is fair to Unitholders (other than OSG and
its affiliates), and to recommend that the Unitholders tender their Units to
the Bidder pursuant to the Offer, the Conflicts Committee considered numerous
factors and a substantial amount of information, including at 15 Committee
meetings held by the Committee since June 2009 and substantial discussions
in between such meetings.
9.
The last paragraph under the heading Item 4The Solicitation or
RecommendationManagement Forecast is replaced in its entirety with the
following paragraphs:
As
described in Background of the Offer, Lazard prepared, at the direction of
and in consultation with the Conflicts Committee, a model (the Alternative
Model) of possible future results of operations of the Partnership based on
assumptions provided by the Committee and on industry data which reflected a
more optimistic view of spot rates in the Jones Act market in 2010 and 2011
than that which OSG management had communicated to Lazard and was reflected in
managements internal forecasts. The
Committee determined that the Alternative Model could be useful as a tool to
assist the Committee in seeking to negotiate a higher price for Unitholders, in
the event that OSG renewed its interest in proceeding with an offer for the
Units, and to assist in assessing managements forecasts in that event. The model included the estimates contained in
the following chart of the Partnerships TCE, or time charter equivalent
revenue, and EBITDA for the years shown below.
The chart also shows the differences between the Management Forecast and
the Alternative Model.
4
|
|
Year Ending December 31,
|
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2009
|
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2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
|
|
($ in millions)
|
|
TCE Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Forecast
|
|
$
|
258
|
|
$
|
300
|
|
$
|
372
|
|
$
|
395
|
|
$
|
378
|
|
$
|
381
|
|
$
|
389
|
|
$
|
403
|
|
$
|
412
|
|
$
|
425
|
|
Alternative Model
|
|
268
|
|
315
|
|
372
|
|
405
|
|
389
|
|
391
|
|
399
|
|
413
|
|
424
|
|
438
|
|
Difference
|
|
$
|
10
|
|
$
|
15
|
|
$
|
0
|
|
$
|
9
|
|
$
|
11
|
|
$
|
10
|
|
$
|
10
|
|
$
|
11
|
|
$
|
10
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Forecast
|
|
$
|
72
|
|
$
|
78
|
|
$
|
111
|
|
$
|
128
|
|
$
|
122
|
|
$
|
128
|
|
$
|
133
|
|
$
|
142
|
|
$
|
147
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Forecast, as adjusted(2)
|
|
72
|
|
65
|
|
85
|
|
100
|
|
94
|
|
100
|
|
105
|
|
114
|
|
118
|
|
121
|
|
Alternative Model(2)
|
|
82
|
|
80
|
|
85
|
|
109
|
|
105
|
|
110
|
|
115
|
|
125
|
|
130
|
|
134
|
|
Difference
|
|
$
|
10
|
|
$
|
15
|
|
$
|
0
|
|
$
|
9
|
|
$
|
11
|
|
$
|
10
|
|
$
|
10
|
|
$
|
11
|
|
$
|
11
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable Cash Flow
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Forecast, as adjusted(2)
|
|
$
|
45
|
|
$
|
26
|
|
$
|
41
|
|
$
|
56
|
|
$
|
49
|
|
$
|
50
|
|
$
|
49
|
|
$
|
56
|
|
$
|
63
|
|
$
|
67
|
|
Alternative Model(2)
|
|
55
|
|
41
|
|
41
|
|
65
|
|
59
|
|
60
|
|
59
|
|
67
|
|
74
|
|
80
|
|
Difference
|
|
$
|
10
|
|
$
|
15
|
|
$
|
0
|
|
$
|
9
|
|
$
|
11
|
|
$
|
10
|
|
$
|
10
|
|
$
|
11
|
|
$
|
11
|
|
$
|
13
|
|
(1)
EBITDA
is calculated as the Partnerships revenue from vessel operations less
operating costs, charter-in-expenses, SG&A expense, amortization of startup
costs and DPO expense, plus equity income from affiliates and interest income.
(2)
As more fully
described in Opinion of Lazard Frères & Co. LLCFinancial Advisor to
the Conflicts CommitteeValuation AnalysesDiscounted Distributions Analysis,
Lazard assumed, at the direction of and in consultation with the Conflicts
Committee, that the two AMSC shuttle tankers were purchased by OSG and
chartered-in by the Partnership at bareboat charter rates based on a $132.7
million purchase price and a 10% discount rate.
The effect of this assumption on the Partnership is to reduce EBITDA (as
shown above) and simultaneously to eliminate the financing expenses (additional
interest expense and issuance of equity) associated with purchasing the
ships. The financing expenses, if
incurred, negatively impact distributable cash flow and distributable cash flow
per share. This assumption has no impact
on the Partnerships EBITDAR.
(3)
Reflects
purchase of two ATBs for $135 million each, financing such purchases (x) half
with debt, with interest at LIBOR plus 350 basis points and (y) half with
issuance of additional Units at a price of $8.00 per Unit.
As
described in Background of the Offer, the Conflicts Committee determined in September 2009,
after the Management Forecast had been updated to reflect improvements in the
Partnerships prospects as a result of the settlement with AMSC and APSI, that,
while all forecasts of future results of operations of businesses like those operated by the
Partnership are inherently uncertain, the material assumptions underlying the
Management Forecast appeared to be reasonable and that it was preferable for
Lazard to use the revenue, EBITDA and EBITDAR projections in the Management
Forecast rather than earlier management forecasts or the Alternative Model
because the Management Forecast was generally more favorable than the prior
management forecast and no alternate forecast (including the Alternative Model)
available to the Committee was more likely to be achieved.
As
indicated above, the Management Forecast assumes that the two AMSC shuttle
tankers were purchased by OSG and chartered-in by the Partnership and that the
two ATBs are purchased by the Partnership. The impact of the two shuttle
tankers and two ATBs on the Partnerships revenue, EBITDA and distributable cash
flow were as follows:
5
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
|
|
($ in millions)
|
|
Revenue
|
|
$
|
0
|
|
$
|
51
|
|
$
|
86
|
|
$
|
92
|
|
$
|
95
|
|
$
|
95
|
|
$
|
96
|
|
$
|
100
|
|
$
|
103
|
|
$
|
105
|
|
EBITDA
|
|
0
|
|
25
|
|
39
|
|
40
|
|
42
|
|
41
|
|
42
|
|
45
|
|
47
|
|
48
|
|
Distributable Cash Flow
|
|
0
|
|
15
|
|
25
|
|
26
|
|
27
|
|
27
|
|
27
|
|
31
|
|
34
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Management Forecast was prepared for internal use and not prepared with a view
to public disclosure and is being included here only because such information
was provided to Lazard and the Conflicts Committee and was used in connection
with their analysis of OSGs proposals to acquire the Units. The Alternative Model was prepared by Lazard,
at the direction of, in consultation with and using assumptions provided by the
Conflicts Committee, as a tool to assist the Committee in seeking to negotiate
a higher price for Unitholders, in the event that OSG renewed its interest in
proceeding with an offer for the Units, and to assist in assessing managements
forecasts in that event. Neither the
Management Forecast nor the Alternative Model was prepared with a view to
compliance with the published guidelines of the SEC or the guidelines
established by the American Institute of Certified Public Accountants for
preparation and presentation of prospective financial information. Neither the Management Forecast nor the
Alternative Model purports to present operations in accordance with U.S.
generally accepted accounting principles, and the Partnerships registered
public accounting firm has not examined, compiled or otherwise applied
procedures to the Management Forecast or the Alternative Model and accordingly
assumes no responsibility for them. The
Management Forecast has been prepared by, and is solely the responsibility of,
management of the General Partner. The
inclusion of the Management Forecast and the Alternative Model should not be
regarded as an indication that they will be predictive of actual future
results, and the Management Forecast and the Alternative Model should not be
relied upon as such. No representation
is made by the Partnership or any other person to any security holder of the
Partnership regarding the ultimate performance of the Partnership compared to
the information contained in the Management Forecast or the Alternative
Model. Although presented with numerical
specificity, neither the Management Forecast nor the Alternative Model is fact
and each reflects numerous assumptions and estimates as to future events that
were believed to be reasonable at the time the Management Forecast and the
Alternative Model, as applicable, were prepared and other factors such as
industry performance and general business, economic, regulatory, market and
financial conditions, as well as factors specific to the Partnerships
business, all of which are difficult to predict and many of which are beyond
the control of management. In addition,
neither the Management Forecast nor the Alternative Model takes into account
any circumstances or events occurring after the date that it was prepared and,
accordingly, neither the Management Forecast nor the Alternative Model gives
effect to any changes to the Partnerships operations or strategy that may be
implemented after the consummation of the Offer. Accordingly, there can be no assurance that
either the Management Forecast or the Alternative Model will be realized, and
actual results may be materially greater or less than those reflected in the
Management Forecast or the Alternative Model, as applicable. The General Partner has informed the
Partnership that management does not intend to update or otherwise revise the
Management Forecast to reflect circumstances existing after the date on which
the Management Forecast was presented to the Committee and Lazard or to reflect
the occurrence of future events even in the event that any or all of the
assumptions underlying the Management Forecast are shown to be in error. It is also not intended that the Alternative
Model will be updated or otherwise revised to reflect circumstances existing
after the date on which the Alternative Model was prepared or to reflect the
occurrence of future events even in the event that any or all of the
assumptions underlying the Alternative Model are shown to be in error. The projections contained in the Management
Forecast and the Alternative Model are forward-looking statements. These statements involve certain risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements.
Information on other important potential risks and uncertainties not
discussed herein may be found in the Partnerships filings with the SEC,
including its Annual Report on Form 10-K for the year ended December 31,
2008 and its Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 2009, June 30, 2009 and September 30, 2009.
6
10.
The paragraphs under the heading Item 4The Solicitation or
RecommendationOpinion of Lazard Frères & Co. LLCFinancial Advisor to
the Conflicts CommitteeValuation Analyses are replaced in their entirety with
the following paragraphs:
Valuation Analyses
Discounted Distributions Analysis.
Lazard
performed a discounted distributions analysis analyzing the present value of
the projected distributions per Unit of the Partnership, without giving effect
to the Offer, based on financial projections and estimates prepared by the
management of the General Partner (including adjustments described below made
at the direction of the Conflicts Committee) for the period from the fourth
quarter of 2009 to calendar year 2018.
OSG assumed in the Management Forecast that the Partnership purchased
from OSG for a total of $267 million two AMSC shuttle tankers as to which the
Partnership had a bareboat charter option from OSG. At the direction of the Conflicts Committee,
Lazard assumed in its analysis that the two AMSC shuttle tankers were purchased
by OSG and chartered-in by the Partnership at bareboat charter rates based on a
$132.7 million purchase price and a 10% discount rate.
Lazard
analyzed the Management Forecast, as revised, under four scenarios: (1) a
scenario where the Partnership bareboat charters in two shuttle tankers from
OSG (with the charter rates estimated based on a $132.7 million average
purchase price for such shuttle tankers and a 10% discount rate) and purchases
two Articulated Tug Barges (ATBs) for $135 million each, financing such
purchases (x) half with debt, with interest at LIBOR plus 350 basis points
and (y) half with issuance of additional Units at a price of $8.00 per
Unit (Case 1); (2) a scenario identical to Case 1, with the additional
assumption that distributions to Unit holders are suspended from the third
quarter of 2009 to the fourth quarter of 2011 (Case 2); (3) a scenario
where no new shuttle tankers or ATBs are purchased or chartered in by the
Partnership (Case 3); and (4) a scenario identical to Case 3, with the
additional assumption that distributions to Unit holders are suspended from the
third quarter of 2009 to the fourth quarter of 2011 (Case 4). In addition, Lazards analysis assumes that
OSG will reach a definitive agreement with AMSC that reflects the terms of the
nonbinding settlement proposal entered into by OSG, AMSC and APSI on August 31,
2009, as more fully described in the Offer to Purchase.
In
the discounted distributions analysis, Lazard assumed that projected
distributions would be made in accordance with the terms of the Partnership
Agreement and that 100% of distributable cash flow would be distributed each
quarter. As part of the discounted
distributions analysis, Lazard calculated a terminal value based on the
assumption that distributions would continue in perpetuity at the projected
2018 level (without additional growth) and used equity discount rates ranging
from 12.0% to 16.0%. The Conflicts
Committee determined that a nine-year forecast period was reasonable and there
was no reasonable basis to require either a longer or shorter forecast period
or to assume either contraction or expansion of the Partnerships business
beyond 2018. In determining the equity
discount rates, Lazard considered the cost of equity for the
five publicly
traded master limited partnerships in the shipping industry (identified below
under Comparable Companies Analysis), but noted that none of these
partnerships had business, trading and structural characteristics identical to
the Partnership such that the cost of equity would be the same
. Based on the foregoing, Lazard
calculated a range of implied equity value per Unit of approximately $9.01 to
$12.18 under Case 1, and a range of implied equity value per Unit of
approximately $8.87 to $12.05 under Case 3.
(In Case 2, Lazard calculated a range of implied equity value per Unit
of approximately $8.11 to $11.43 and in Case 4, Lazard calculated a range of
implied equity value per Unit of approximately $7.94 to $11.25.)
7
Comparable
Companies Analysis.
Lazard reviewed
and compared selected financial information for the Partnership with
corresponding financial information of the five publicly traded master limited
partnerships in the shipping industry.
The partnerships considered were:
·
Capital Product Partners L.P.
·
K-Sea Transportation Partners L.P.
·
Navios Maritime Partners L.P.
·
Teekay Offshore Partners L.P.
·
Teekay LNG Partners L.P.
For each of these
partnerships, Lazard derived and
compared the metrics it considered to be relevant in the shipping industry,
including, among other things, the ratio of (1) the enterprise value of
the selected partnership to its earnings before interest, tax, depreciation and
amortization, commonly called EBITDA (referred to as EV/EBITDA in the chart
below), (2) the adjusted enterprise value of the selected partnership
(adjusted to reflect the capitalized value of operating lease payments) to its
earnings before interest, tax, depreciation, amortization and rent, commonly
called EBITDAR (referred to as Adjusted EV/EBITDAR in the chart below),
and (3) each partnerships unit price as of September 20, 2009 to its
distributable cash flow (referred to as Price/DCF in the chart below). Lazard
also reviewed each partnerships distribution yield using that partnerships
most recently declared distribution, annualized, divided by that partnerships
unit price as of September 20, 2009 (each as reflected in Fact Set, public
documents, company press releases and publicly available Wall Street
research). The results of these analyses
are set forth in the chart below:
|
|
EV/EBITDA
|
|
Adjusted
EV/EBITDAR
|
|
Price/DCF
|
|
|
|
Limited Partnerships
|
|
2008
(actual)
|
|
2009
(estimate)
|
|
2008
(actual)
|
|
2009
(estimate)
|
|
2008
(actual)
|
|
2009
(estimate)
|
|
2010
(estimate)
|
|
Distribution
Yield
|
|
Capital Product
Partners L.P.
|
|
6.6
|
x
|
7.4
|
x
|
6.6
|
x
|
7.4
|
x
|
4.1
|
x
|
5.0
|
x
|
4.8
|
x
|
18.7
|
%
|
K-Sea Transportation
Partners L.P.
|
|
8.6
|
x
|
8.4
|
x
|
8.5
|
x
|
8.4
|
x
|
6.4
|
x
|
6.7
|
x
|
6.3
|
x
|
15.3
|
%
|
Navios Maritime
Partners L.P.
|
|
9.8
|
x
|
7.7
|
x
|
10.0
|
x
|
8.2
|
x
|
7.7
|
x
|
6.9
|
x
|
6.5
|
x
|
13.3
|
%
|
Teekay Offshore
Partners L.P.
|
|
9.1
|
x
|
9.1
|
x
|
8.9
|
x
|
9.7
|
x
|
9.1
|
x
|
9.3
|
x
|
7.1
|
x
|
11.1
|
%
|
Teekay LNG
Partners L.P.
|
|
12.6
|
x
|
10.5
|
x
|
12.6
|
x
|
10.5
|
x
|
10.3
|
x
|
9.4
|
x
|
8.8
|
x
|
9.5
|
%
|
Lazard
calculated a range of implied values per Unit by dividing the Partnerships
quarterly distribution of $0.375, annualized to $1.50, by a range of distributable
cash yields of 11% 15%. Lazard
determined the range by considering for each of the five publicly traded master
limited partnerships in the shipping industry, among other things, the
distribution yield, growth prospects and publicly available information about
projected distributions. Based on the
foregoing analysis, Lazard calculated a range of implied equity value per Unit
of approximately $10.00 $13.64. This
analysis assumes the continuation of distributions on Units at the $1.50 annual
rate regardless of the Partnerships actual future results of operations. (In addition, the suspension of distributions
on the Units is not reflected in Lazards analysis given that it occurred on October 29,
2009, which was after the date on which Lazard rendered its opinion.) Lazard
noted in its presentation to the Conflicts Committee, however, that OSG had
indicated
8
that
the Partnership might be unable to continue to distribute to the Unit holders
the minimum quarterly distribution of $0.375 (or $1.50 annually). Had Lazard assumed the suspension or
termination of quarterly distributions, the implied equity value derived from
the comparable companies analysis would have been lower than the $10.00
$13.64 range set forth above.
For
reference, Lazard reviewed and compared selected financial information for the
Partnership with corresponding financial information of seven non-partnership
publicly traded companies in the shipping industry. The comparable non-partnership companies were
Horizon Lines, Inc., Hornbeck Offshore Services, Inc., SEACOR
Holdings, Inc., dAmico International Shipping SA, TORM A/S, Omega
Navigation Enterprises, Inc. and DHT Maritime, Inc. Of these companies, the first three are Jones
Act companies, the second three are tanker companies that transport refined
products in the international markets and the last was spun out of OSG. For each of these companies, Lazard reviewed
selected ratios and multiples related to enterprise value and equity value and
compared such selected ratios and multiples with the corresponding ratios and
multiples derived for the Partnership.
No
partnership or company utilized in the comparable public company analysis is
identical to the Partnership. Lazard made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the Partnership. Mathematical analysis of comparable public
companies in isolation from other analyses is not an effective method of
evaluating transactions.
Allocating Total Equity Value Among
Multiple Classes of Equity.
The Partnership has multiple classes of equity. Because the Units have a preference, as to
distributions, over the subordinated units, Lazard considered the allocation of
the total equity value of the Partnership, as implied by various valuation
methodologies, among the Units, the subordinated units and the general partner
interest. Regarding the allocation of
the Partnerships equity value to the Units, Lazard considered the following: (1) the
relative value of the Units as compared to the value of the subordinated units
as implied by the discounted distributions analysis; (2) transactions
involving the purchase of subordinated units of master limited partnerships in
distressed situations; and (3) the value that would be attributable to the
Units in a liquidation scenario (pursuant to Article 6.01(c) of the
Partnership Agreement). Lazard
considered the November 30, 1998 announced restructuring of Suburban
Propane Partners, the April 6, 1999 announced acquisition of National
Propane Partners and the September 24, 2001 announced recapitalization of
EOTT Energy Partners. With respect to
each of these transactions, Lazard calculated the value received for the
subordinated/general partner interests as a percentage of the per unit
equivalent of the Unit value. Because
the market conditions, rationale and circumstances surrounding each of these
three transactions were specific to such transaction, and because of the
inherent differences between the businesses, operations and prospects of the
Partnership and the partnerships involved in the transactions analyzed, Lazard
believed that it was inappropriate to, and therefore did not, rely solely on
the quantitative results of the analysis and, accordingly, also made
qualitative judgments concerning differences between the characteristics of
these transactions and the Offer
.
The
calculations that Lazard made (as described in the previous paragraph)
indicated a representative range of value for the subordinated units and
general partner interest of 27 50% of the value per Unit. This range reflects, in total, the relative
value of the Units as compared to the value of the subordinated units as
implied by the discounted distributions analysis and three transactions (as
described in the previous paragraph) involving the purchase of subordinated
units of master limited partnerships in distressed situations. For valuation methodologies that implied a
total equity value for the Partnership as a whole, Lazard used this range to
allocate equity value between the Units, the subordinated units and the general
partner interest. Management of the
General Partner provided Lazard with an analysis by PricewaterhouseCoopers
indicating that the value of the Partnerships 704(b) capital account, as
of December 31, 2008, was $17.51 per Unit.
To the extent that a valuation methodology implied a total
9
equity
value of the Partnership such that, after allocating the Partnerships equity
value between the Units, the subordinated units and the general partner
interest, the value attributable to the Units was in excess of $17.51 per Unit,
Lazard allocated the Partnerships equity value as follows: first, to the
Units, up to $17.51 per Unit; second, to the subordinated units and the general
partner interest, up to $17.51 per unit equivalent; and third, pro rata between
the Units, the subordinated units and the general partner interest. While this methodology reflects the rights
and preferences of the Units over the subordinated units and the general
partner interest in a liquidation scenario, OSG indicated that it was not
considering a liquidation of the Partnership.
Given the current state of Jones Act shipping markets and the limited
availability of liquidity, the actual proceeds realized from a liquidation of
the Partnership could be significantly below the theoretical values implied by
various valuation methodologies.
Comparable Transactions Analysis.
Lazard
reviewed selected publicly available information for eight private market
transactions in the shipping and marine transport industries announced in the
prior five years (that is, between May 2004 and August 2008). Each of the target companies involved in the
private market transactions was a shipping company that carried refined
products. Lazard analyzed the following
transactions:
Announcement Date
|
|
Acquiror
|
|
Target
|
|
Target
Description
|
|
|
|
|
|
|
|
Aug-08
|
|
Maersk Product Tankers AB
|
|
Brostrom AB
|
|
Shipping, and marine and
logistics services
|
Aug-08
|
|
General Maritime
Corporation
|
|
Arlington Tankers Ltd.
|
|
Marine transport of fuel
and other petroleum products
|
Jan-08
|
|
TORM A/S
|
|
FR8 Holdings Pte Ltd.
|
|
Commercial and technical
management of marine ships
|
Apr-07
|
|
Teekay Corporation and
TORM A/S
|
|
OMI Corporation
|
|
Marine transport of
petroleum products
|
Sep-06
|
|
Overseas Shipholding
Group, Inc.
|
|
Maritrans Inc.
|
|
Marine transport of
refined petroleum and petroleum products
|
Jun-06
|
|
Morgan Stanley Capital
Group Inc.
|
|
Heidmar Group
|
|
Marine transport and
logistics of oil
|
Mar-05
|
|
SEACOR Holdings, Inc.
|
|
Seabulk International Inc.
|
|
Marine transport of fuel
and other petroleum products
|
May-04
|
|
Overseas Shipholding
Group, Inc.
|
|
Stelmar Shipping Ltd.
|
|
Tanker vessel
transportation
|
With
respect to the financial information for the companies involved in the eight
transactions identified above, Lazard relied on information available in public
documents and company press releases.
Using this publicly available information, Lazard derived and compared,
among other things, the ratio of the adjusted enterprise value of each acquired
company (adjusted to reflect the capitalized value of operating lease payments)
to its LTM EBITDAR. Lazard considered
this metric to be relevant in analyzing precedent transactions in the shipping
industry. This analysis indicated a
representative range of LTM EBITDAR multiples of 10 11x within the comparable
transaction set. The comparable
transactions analysis methodology yielded valuations for the Partnership that
imply total equity values ranging from $386 million to $520 million. Based on the analysis described under Allocating
Total Equity Value Among Multiple Classes of Equity and the foregoing
analysis, Lazard calculated a range of implied equity value per Unit of
approximately $16.92 $17.51. Because,
among other things, market
10
conditions
surrounding each of the eight comparable transactions analyzed were different
than market conditions facing the Partnership and none of the comparable
transactions involved the acquisition of a minority interest of a controlled
affiliate, Lazard believed that it was inappropriate to, and therefore did not,
rely solely on the quantitative results of this analysis and, accordingly, also
made qualitative judgments concerning differences between the characteristics
of these transactions and the Offer.
Net Asset Value.
Net asset value (NAV) is a
commonly used valuation parameter for valuing shipping companies because of
their large asset bases, the usage of which is critical to the earnings
capacity of such companies. Lazard
performed a NAV analysis for the Partnerships fleet, estimating the value of
the Partnerships vessels based on various methodologies, including secondary
market transactions, estimated replacement cost and discounted cash flows
analysis. Lazard calculated the
asset/operating value of the Partnership as a whole, less the Partnerships net
outstanding debt as of June 30, 2009, to arrive at a NAV for the
Partnership. Lazard then applied two
different methods of calculating the appropriate discount to NAV to derive the
total equity value of the Partnership.
First,
Lazard reviewed the precedent transactions announced in August 2008
(Brostroms acquisition by Maersk Product Tankers and Arlington Tankers
acquisition by General Maritime Corporation), considering the NAV of the target
company that was publicly available at the time of the transaction announcement
and the deal value. Based on this
analysis, Lazard discounted the NAV of the Partnership from 15% 25%. This NAV methodology yielded valuations for
the Partnership that imply total equity values ranging from $286 million $324
million. The total equity value of the
Partnership as implied by this NAV analysis was then allocated between the
Partnerships various classes of equity by assuming a range of values for the
subordinated units and the general partner interest of 27% 50% of the per
unit equivalent of Unit value, as described under Allocating Total Equity
Value Among Multiple Classes of Equity. Based on the foregoing analysis,
Lazard calculated a range of implied equity value per Unit of approximately $12.55
$16.88.
Second,
Lazard reviewed the NAV trading history of publicly traded companies in the
shipping industry during September 2008, before the shipping industry in
particular began to experience pronounced dislocation. Lazard considered the following 13 companies:
Aries Maritime Transport Ltd., Arlington Tankers Ltd., dAmico International
Shipping S.A., DHT Maritime, Inc., General Maritime Corp., Knightsbridge
Tankers Ltd., Nordic American Tanker Shipping Ltd., Omega Navigation
Enterprises, Inc., OSG, Ship Finance International Ltd., Teekay Corp.,
TORM A/S and Tsakos Energy Navigation Ltd.
Lazard divided each selected companys share price by its NAV per share,
using both the September 4, 2008 share price and the September 23,
2009 share price of each selected company.
This analysis resulted in a price/NAV ratio range for the selected
companies of 38% 108% for September 4, 2008 (with a median of 60%,
implying a 40% discount to NAV) and 7% 82% for September 23, 2009 (with
a median of 31%, implying a 69% discount to NAV). Because the most recent reliable NAV per
share data upon which Lazard based its analysis was from September 2008,
Lazard applied the median implied discount rate of 40% from September 2008
to the current NAV of the Partnership.
The total equity value of the Partnership as implied by this NAV
analysis was then allocated between the Partnerships various classes of equity
by assuming a range of values for the subordinated units and the general
partner interest of 27% 50% of the per unit equivalent of Unit value, as
described under Allocating Total Equity Value Among Multiple Classes of
Equity. Based on the foregoing analysis, Lazard calculated a range of implied
equity value per Unit of approximately $10.04 $11.91.
Because
of, among other things, the limited secondary market for Jones Act vessels and
the difficulty in estimating precise values for the Partnerships vessels,
Lazard believed it was inappropriate to, and therefore did not, rely solely on
the quantitative results of either NAV analysis and, accordingly, also made
qualitative judgments in applying the results of these NAV analyses.
11
Item 9. Exhibits.
Item 9 is hereby amended and supplemented by
adding the following thereto:
(a)(10)
|
|
Amended Complaint filed in Balanced Beta Fund
v. Morten Arntzen, et al., Case No. 09-CA-025646, Circuit Court of the
13
th
Judicial District, Hillsborough County,
Florida (filed November 9, 2009)(3)
|
(a)(11)
|
|
Stipulation
and Proposed Order,
Cornelius P.
Dukelow v. OSG America, L.P. et al., Index No. 650580/2009E, Supreme
Court of the State of New York (filed November 19, 2009
)(
3)
|
(a)(12)
|
|
Ben Doren v. OSG America LP, et al., Case
No. 09-29162, Circuit Court of the 13
th
Judicial District,
Hillsborough County, Florida (filed November 20, 2009)(4)
|
(3)
|
|
Incorporated
by reference to Amendment No. 1 to the Schedule TO filed by OSG and OSG
Bulk on November 20, 2009.
|
(4)
|
|
Incorporated
by reference to Amendment No. 2 to the Schedule TO filed by OSG and OSG
Bulk on November 24, 2009.
|
12
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: November 27,
2009
|
|
|
|
|
|
|
OSG AMERICA L.P.
|
|
|
|
|
By: OSG America LLC, its
general partner
|
|
|
|
|
|
|
|
By:
|
/s/ JAMES G. DOLPHIN
|
|
|
Name:
James G. Dolphin
|
|
|
Title:
Director
|
|
|
|
|
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