Well, that didn’t take long…
Friday, TWM announced that the Pipestone transaction - which I outlined as the key catalyst in Thursday’s write-up - has officially closed. Total consideration came in at $665 million, higher than the $650 million headline, due to recent strength in AltaGas shares (remember, only $325 million of the proceeds are cash). This is around $5 million less than I modelled out, but it does not materially impact the upside.
This is obviously great news, given that the Pipestone deal closing (which was contingent on FID approval) was the key risk for this thesis. So, now we have a materially de-risked situation that already had extremely limited downside. Moreover, as I hoped for, the press release reiterates that management will look to use the proceeds to immediately deleverage: “Tidewater will us the net proceeds from the Transaction for general corporate purposes, including the repayment of amounts on its senior credit facility, which will provide an immediate improvement to Tidewater's leverage profile and a reduction to cash interest costs.”
Okay, so we have 1) a huge inflow of cash coming in relative to the company’s EV which 2) the company is committed to using to clean up a balance sheet that has long hampered profitability. This is playing out precisely as hoped for so far. But, there’s more good news: the company announced a normal course issuer bid (i.e. a share repurchase program) for up to 10% of the public float. The buyback will be in lieu of the ordinary $0.01 quarterly dividend. I think this is a huge win for shareholders. For one, given how cheap this stock is, buying back shares here is a far better use of capital than paying dividends. And, perhaps even more importantly, I think this shows how serious this new management team is about prudent capital allocation and unlocking as much shareholder value they can here. There is still a lot of hidden value in this company that can be unlocked with proper execution.
Shares closed at $1.03 Friday, up around 5% since the post. I continue to expect this to trade significantly higher in the short-term and intend to add to my position when the market re-opens at prices below $1.05.