Fairstar rejects Dockwise offer of financial support as a 'poison pill'

Dockwise said its offer to Fairstar was to assist "in the short term financing needs of the company through the provision of a USD30 million subordinated loan, for a period of up to three years, with interest of 1 percent over LIBOR for the first 2.5 months and 6 percent over LIBOR thereafter, to bridge the period to an equity offering of between 20 and 60 million shares, at NOK9.30, with full protection of the pre-emptive and other rights of all the Fairstar shareholders. The proposed USD30 million was based on the expected maximum proceeds of the equity issue of 20 million shares as put on the agenda for the AGM. The proposed USD30 million short term financing would be part of the potential overall capital injunction by Dockwise of USD50-100 million referred to above."

In a statement, Fairstar said: "It does not consider 'poison pills' of any sort to be appropriate tools in the proper management of our stakeholders' interests."

The Fairstar statement reported that Fairstar had a facility in place with DNB Bank ASA that would have provided not only the funding required to take delivery of the Forte as well as make a progress payment for the Finesse, which provided the company with a performance bond facility that is required under the various contracts Fairstar has signed for Gorgon, Ichthys, Golden Eagle and CMMP Iraq.

The DNB facility had a change in control clause giving DNB the right to withdraw the facility if any one party breached a 30 percent threshold. A beach occurred on April 22, 2012 with the Dockwise acquisition of over 50 percent of Fairstar's outstanding shares. As a result the DNB facility is no longer available to Fairstar.

Fairstar says that it has conscientiously explored other options since April 22 as it has an obligation to pay its partners in China for their work on Forte and Finesse.

It is adamant that those obligations will be met, as well as the obligations to its partners in Gorgon, Ichthys, Golden Eagle and CMMP Iraq to issue performance bonds equivalent to 10 percent of the contracts' value.

Fairstar has advised that it is currently negotiating with a new bank group to finalise a facility that will provide the liquidity it needs to pay for its newbuildings, and issue the performance bonds it has promised to provide.

In its own press release about the offer of financial support, Dockwise said its vote against a proposed share issue at the recent Fairstar AGM was based on "insufficient disclosure by Fairstar on its financial situation, a refusal from the Fairstar Boards to provide additional information and to provide sufficient detail of the reasons for, and proposed modalities of, the capital increase, as well as Dockwise' need to protect its shareholder rights."

In response, Fairstar says that it remains concerned with the information being released by Dockwise" adding that: "The financial reporting of our company has been properly audited and punctually released. Our auditors were present at the AGM to answer all of the questions asked by the Dockwise representatives. The AGM minutes will reveal that the Dockwise representatives had failed to read the accounts accurately. The suggestion made by Dockwise in their OSE release on 15/5 of "insufficient disclosure" is not true."

Fairstar continues to insist that the values of the combination of the two companies is accretive up to NOK14, describing the NOK9.3 offer that has been tabled as: "low ball."

The Fairstar statement adds: "Dockwise has engaged in a hostile and dishonest campaign against Fairstar. They have told our employees that no changes will be made 'for the foreseeable future', they have told the market 'the interests of minority shareholders who will remain in Fairstar will be properly taken into account'. This type of ambiguous language is the specialty of clever lawyers. The words are hollow and their true intentions are perfectly clear."

Whilst the war of words between the two companies shows no signs of abating, it remains to be seen whether the 45.4 percent of shareholders who have yet to decide whether to accept the Dockwise offer of NOK9.3 per chare, will eventually jump ship. To HLPFI, it looks like there is a lot more to come on this saga before the dust finally settles.

www.fairstar.com