A major investor in Scorpio Bulkers, Monarch Alternative Capital, has publicly voiced its disagreement with management after a highly discounted follow-on offering.
On 10 June, NYSE-listed Scorpio Bulkers priced 133 million shares at USD1.50/share, a 31% discount to the previous closing price. Prior to the offering, Monarch and related funds were the largest shareholders of Scorpio Bulkers, owning 34 million shares in aggregate or 18.9% of shares outstanding, which the funds had acquired for USD156.3 million in open-market purchases.
Monarch disclosed in an 11 June securities filing that it learned of the “contemplated public offering” on 9 June and on that date “had discussions with representatives of the issuer regarding such offering”.
Monarch told Scorpio Bulkers that it was “not inclined to purchase additional shares of common stock on the terms proposed by the company”. It countered with terms under which it would buy additional shares, including “designated representatives to the board”.
Monarch said that it plans to “meet and have discussions with members of the board and senior management [of Scorpio Bulkers] and discuss the issuer’s business, strategies, and capital structure, including a potential financing transaction [with Monarch or its affiliates]” and improvements to Scorpio Bulker’s “corporate governance”.
The Monarch filing confirmed the potential for a more ‘activist’ stance by the hedge fund. Activist investors seek to create value by compelling companies towards a different strategy, often by publicly criticising management.
Monarch said that its initial investment in Scorpio Bulkers was “not with the purpose of changing or influencing the control or management” of the company. However, it now confirms that depending on Scorpio Bulkers’ strategy and the company’s response to Monarch’s concerns, Monarch could “take actions including communication with management, the board, other stockholders, industry participants, and other interested parties”.