Euroseas/EuroDry 2018 Spin-off: Repeatable?
A basic corporate valuation principle: the day after a company pays a dividend, the valuation of the company will decrease by the amount of the dividend (whether paid in cash or stock). Yet, the conventional corporate finance rules don’t often apply to public shipping companies—take the 2018 Euroseas Ltd. spin off of EuroDry Ltd., for example.
Euroseas (ESEA) spun off its fleet of dry bulk carriers into a new company Eurodry (EDRY) by paying a dividend of shares of EDRY to all of the shareholders of ESEA.
May 30, 2018 | The market cap of ESEA (inclusive of the fleet that was to be spun off into EDRY) was $27.6 million.
May 31, 2018 | The combined market cap of ESEA and EDRY was $38.0 million.
According to the above corporate valuation principle, there should have been no change whatsoever. However, the result was a 38% increase in value overnight on the exact same ships, split across two different companies.
Fast forward to today: ESEA recently announced it will spin off three container ships into a new public company, Euroholdings, at the end of January—like it spun off EDRY in 2018.
Time will tell if ESEA shareholders will benefit from defying corporate finance gravity a second time around.
Disclaimer: I am long shares of Euroseas in anticipation of the Euroholdings spin-off.
This post is strictly for informational purposes and should not be considered investment advice.
