Page 13 of 14 – SEC Filing
We believe that the prior series of
events has contributed to the decline in TNK’s share price demonstrating that shareholders are not in favor of how TNK
is allocating their capital. In addition Huber Capital believes that Teekay Tankers’ Corporate Governance and board
construction has also contributed to the lack of timely action when it comes to prudent capital allocation policies. A large
proxy voting data and research provider appears to agree and has recommended for at least four consecutive years that votes
be withheld against several directors. In its research, some of the board’s shortcomings are noted, including the
view that half or more of the Teekay Tankers Ltd. board would not be considered independent by the standards of the research
provider, and that when directors of a company are not independent, their ability to objectively oversee corporate
performance and executive compensation may be hindered. We believe this calls into question the board’s willingness to
set company strategy independent from management.
Huber Capital questions the independence
of the board’s “independent” directors as they have been handpicked by non-independent representatives and are
automatically elected due to the super voting rights of the Class B shares. Once again, these Class B shares are a share class
that have, on several occasions, been issued to the parent for assets that are purchased at levels at or above what market participants
have been willing to pay.
“The Largest Publicly-Listed Mid-Sized
Tanker Company”
We further believe that TNK’s apparent
empire-building program may lead the board and management to increase their salaries; as management teams with a larger number
assets are highly correlated with justification for higher compensations. While we believe that paying a robust premium of over
20% at the time of the announcement for the acquisition of the TIL assets is good for several of TNK’s related parties, it
is not the best use of capital or course to take for the Class A shareholders.
While TNK is asking for additional shares
in another above market related-party transaction, they only need approximately an additional 31 million Class A shares authorized,
yet they are asking the Class A shareholders to authorize an additional 200 million shares. While it is difficult for us to ascertain
how much more related-party assets the board and management intends to purchase, prior actions suggest to us that they are seeking
the ability to expand, in our view, their empire-building program by almost tripling the number of outstanding Class A shares from
142.2 million today to 400 million. Per the company’s own presentation, if the TIL purchase is executed, their program already
“creates largest publicly-listed mid-sized tanker company.” Just imagine how much dilution the Class A shareholder
will have as the company dilutes us from 142.2 million shares to 400 million shares.
Teekay Tankers’ management laid out
a variety of reasons for why the TIL transaction is an attractive deal for shareholders, but we view some of their arguments as
unfounded. First is the discussion of increasing Teekay Tankers’ liquidity by $117 million; at current TNK prices that liquidity
boost would costs shareholders $160 million in equity issuances and require the assumption of $309 million of debt. While liquidity
is a concern for Huber Capital, we believe that selling assets at current market values, paying off the secured portion of debt,
and unlocking excess liquidity as a far more attractive option than buying TIL assets at a premium with TNK equity that is currently
trading at a deep discount. Secondly, management claims that the deal is accretive on an earnings per share basis, however when
looking at the transaction on a Net Asset Value per Share basis, paying a premium for the TIL fleet using undervalued TNK equity
is once again a dilutive proposition. Finally, Teekay Tankers is claiming that they are lowering their all-in cash breakeven level
by $1,000 (per day, per ship), which is technically true, but only because they would be assuming debt that has a lower amortization
schedule than their current balance sheet. A better near-term debt repayment schedule doesn’t lower your long-term breakeven
levels, it simply increases leverage on an entity that already has plenty of it.
