Star Bulk and Eagle Bulk on a way to the biggest US shipping merge 🚢

U.S.-listed Star Bulk Carriers (SBLK.US) and Eagle Bulk Shipping (EGLE.PL) have decided on a $2.1 billion valued merger, in which Star will acquire Eagle Bulk in a stock transaction, paying about 17% more for the company's shares than the last closing price (more than $52 per share vs. $44.85 at the close of trading). Eagle Bulk shareholders will receive 2.62 Star Bulk shares.  The merger is expected to close in the first half of 2024.

• Star Bulk will become the largest U.S.-listed ocean freight company, with a fleet of 169 available vessels, the majority of which will be medium-sized container ships. Both companies specialize in transporting dry cargoes such as steel, coal, copper and grain.
• As many as 97% of the units of both companies are equipped with modern 'scrubbers' to reduce transportation costs. Eagle focuses on the medium-sized dry cargo segment and has one of the largest fleets of Supramax/Ultramax class bulk carriers in the world. 
• The combined company is expected to have total liquidity of nearly $420 million and net leverage of about 37%, as of September 30, 2023 (less than 40% of the company's assets will be financed with debt)
• Both companies will maintain their dividend policies until the acquisition is finalized. Star Bulk estimates that the merger will generate at least $50 million in annual cost and revenue reductions in the 12-18 months after closing, achieved solely through the integration of commercial operations 
• Star Bulk's CEO conveyed that the merger means a stronger financial profile for the company and will bring synergies to the industry.  With a well-capitalized balance sheet, Star intends to continue to deliver strong long-term returns to shareholders after the merger.
• Eagle CEO Vogel conveyed that the company is very excited about the merger with Star Bulk, combining two best-in-class companies, both commercially and operationally. We are combining two highly complementary organizations, and we are confident that the merger will unlock significant value for Eagle shareholders, primarily the opportunity to participate in the long-term benefits of the combined company.

The Baltic Dry index, which tracks average freight prices, on 20 of the world's most important shipping lanes has had quite a run, rising nearly 6-fold since February 2023, but it's hard to say that this has had a direct impact on the stock prices and business performance because demand remains subdued. For example, shares of Germany's Hapag-Lloyd (HLAG.DE) are trading at their cheapest since 2020, while the rally in Star Bulk shares is still very small. Source: xStation5

StarBulk (SBLK, H1, D1 interval) chart.

Despite the dynamic correction, since the beginning of December, the trend for Star Bulk shares on H1 remains upward, with a low RSI near the 40-point level and the potential for a bullish signal from the MACD. The stock is at a key short-term support at the 38.2 Fibonacci retracement, near $20 per share. Holding it could open the way to new local highs above $22 per share. Source: xStation5

On the D1 interval, we see the SMA200 and SMA50 averages forming a 'golden cross'. If the formation of a more permanent trend reversal on the part of the averages were to be confirmed, the key level to watch is the 38.2 Fibonacci abolition of the upward wave from spring 2020, near $20 per share.  Source: xStation5Despite the shipping industry's sizable problems after the covid euphoria, StarBulk maintains a relatively low 'current ratio' of less than 2 points before the merger, indicating that the company can easily pay off all its debts. Net income and revenue have remained more or less unchanged for the past 3 quarters. Net margins have dropped significantly, but are still more than satisfactory, at around 22%. A merger with Eagle Bulk could potentially give the company more room to dictate higher rates, due to less competition. If this were to come to fruition, and if demand were to remain flat or marginally higher, the nearly halved expected C/Z ratio (Forward PE 5.9 vs. PE 9.5) vs. the current C/Z could change as margins improve. Source: XTB Research, Bloomberg Finance LP