One of the most important trends over the last years in American stock exchanges is the phenomenon of activist shareholders, minority shareholders who consistently pursue a pro-active role in the companies in which they have invested, challenge management decisions, and are exceptionally sensitive to any actions of the Board or of major stockholders for their own benefit and not that of the company.
An example of such action by minority shareholders is the case of Aegean Marine Petroleum Network, Inc.
Founded by Dimitris Melissanidis, it is an international company belonging to the Aegean group, and is the biggest independent procurer of maritime petroleum in the world.
In August, 2016, however, it was announced that Melissanidis was leaving the company, selling 22 percent of the stock in his portfolio, for 99 million dollars, to the company. It now appears that the departure was temporary.
According to a 9 March, 2018, report by Lawrence Fletcher, with the assistance of Athens correspondent Nektaria Stamouli, in the Wall Street Journal, a group of Aegean Marine Petroleum stockholders filed suit against the company, charging that it was a “corrupt corporate buyout”.
The report says that the lawsuit was filed in a New York court and seeks an injunction against Aegean Marine Petroleum Networks’ buyout of the HEC (Hellenic Environmental Center) Europe Company.
HEC is a company that manages the liquid waste of ships. In Greece it enjoys a near monopoly market position, including the exclusive management of liquid waste in the Port of Piraeus. It has facilities in the broader zone of fertilisers in Drapetsona, an area where the residents and municipal authorities have for years struggled to remove the chemicals so that the entire area can be reclaimed by its residents.
It was recently announced that Aegean Marine Petroleum will buy out HEC for 367 million dollars, in cash and company shares. If the transaction is completed, the owners of HEC, including the Melissanidis family, will own 33 percent of the stock of Aegean Marine Petroleum.
Dimitris Melissanidis himself stated the following about the impending buyout:
“Merging Aegean and HEC, two companies in which I have participated since their founding, unites two enterprises that are necessary for shipping. Just as Aegean has evolved into an international brand, synonymous with high quality in the provision of fuel, so too HEC has an opportunity to expand internationally to obtain a dominant market position, in providing basic environmental services for ships and ports. I am pleased to be returning as a member of the group that will constitute the biggest shareholder in the company, which will focus on providing combined services, with a commitment to a green world.”
A group of shareholders, however, has a different view. The “activist shareholders” at the moment have about 12 percent of Aegean Marine Petroleum Network’s stock. The group includes American hedge funds and other investors, such as Raymond Bartoszek, the former head of an oil mining company under the colossus Glencore, and Donald Moore, the former head of Morgan Stanley Europe. Tyler Baron, of the San Francisco based Sentinel Rock Capital, is playing a leading role.
This group of investors, in January, 2018, raised issues concerning Aegean Marine Petroleum Network’s management, speaking of “long-term deficiencies in corporate management, fiscal management, and operations”.
They charged the company’s management with the over the 90 percent plunge in the company’s stock value since the 2008 peak. They directly charged that Melissanidis, after leaving the company in 2016, continues to be very involved in the company’s management, which they believe has caused problems.
As Tyler Baron characteristically told the Wall Street Journal, “Someone who is very involved in a company, and no longer has skin in the game (does not risk his own money) is a problem.”
For his part, Raymond Bartoszek underlined that their move is linked with the great changes expected in the shipping fuel sector, as the International Maritime Organisation (IMO) will institute new environmental regulations, aiming at the drastic reduction of sulphur emissions from the shipping fuel of seagoing vessels.
“Important changes are coming in the shipping fuel market, which will change the rules of the game. I would like to ensure that we have the right professionals,” Bartoszek said.
In that context, the Committee for Aegean Accountability was created and drafted an electoral ticket for vacant management positions, in the next general stockholders’ meeting.
It was in the context of this initiative that three minority shareholders – Tyler Baron, August Roth, and Donald Mooore – established RBM LLC, which filed the related lawsuit in the New York courts.
The lawsuit is against Aegean Petroleum Maritime Network, a company founded by Melissanidis in 1995, based in the Marshall Islands and listed on the New York Stock Exchange (NYSE), and against Yorgos Economou, Konstantinos Koutsomitopoulos, and Spyridon Fokas, all directors of the business.
It should be noted that Fokas, in particular, served on the boards of other businesses owned by Melissanidis, as for example the gaming company OPAP, where he held the post of First Vice-President (Non-Executive).
The reasons they cite for moving to block the purchase of HEC by Aegean is that this alters the shareholders’ balances, reducing their share in the company. They say that HEC, and especially Melissanidis, will acquire a large and decisive role in the company, at the expense of the rest of the stockholders and their interests.
They support their view analytically in their lawsuit. They say that the 367 million dollar price tag for the buyout of HEC is excessive, as it values the company at 24 times the EBIDTA profits of 2017, when for similar companies the valuation is eight times EBIDTA. Effectively, they are charging that Aegean is buying a company at a price that is 300 percent above the real value.
However, these are not the only charges. To a large degree, that amount will be covered by issuing 20 million new Aegean stocks, which will be given to the current owners of HEC, which is to say Melissanidis and his family.
That, in turn, means that the current shareholders, who are the plaintiffs, will see the weight of their shares dropping by 33 percent.
They will also see an emerging balance of shareholders – including Melissanidis, his family, and his allies, such as the former member of Aegean management, Peter Georgiopoulos – which will thwart any prospect of others being elected to the Board of the Company.
The lawsuit charges that the terms of the transaction are such that, essentially, the resources of the company will be transferred to “Melissanidis’ coffers”.
We should note here that in the presentation of the proposal, made public by Aegean, which analytically describes the terms of the transaction, the proposed new Board members include George Melissanidis, the son of Dimitris Melissanidis. 
Moreover, the shareholders charge that the management is pressing forward with this buyout at a juncture when Aegean’s share price is receding, even more so (by about 50 percent), following the announcement of the prospect of this transaction.
The negative assessment of the prospects of this transaction, by the large American investment banking advisors firm Stifel, is indicative. It charges that the company’s management is “issuing new shares at the worst possible moment…to the one person in the world with whom the company should avoid concluding transactions”.
Indeed, Stifel maintains that “the only reason that [the defendants] would have not to accept new members, and to promote a particular group of Board members, including Mr. Melissanidis’ son, would be to protect dubious transactions”.
The plaintiffs refer clearly to the machinations by the management of the company, since the announcement of the prospect of the HEC buyout was issued shortly after the announcement that the Committee for Aegean Accountability would present a list of candidates for the Board at the next annual General Meeting of shareholders.
They underline the fact that while the date of the next annual General Meeting, which usually takes place in June, has not yet been announced, the company’s management sought to complete the transaction by April. That means that four new Board members who support Melissanidis’ positions will be added.
The plaintiffs also argue that in order to reduce the weight of their stocks by increasing the total number of shares, allowing Melisssanidis to take 33 percent of the shares, and with the others to control over 50 percent of the business, the defendants will be able to elect whichever directors they want. Hence, the General Meeting of shareholders will be a mere formality.
The evidence presented in the lawsuit includes a number of interesting elements.
They cite all the problems with the justice system that Dimitris Melissanidis has faced over time, including fines for tax and customs violations, charges of felonies and convictions on lesser charges.
In addition, they raise serious questions about the previous transaction, with which Melissanidis left Aegean Maritime Petroleum Network.
Specifically, they note that Melissanidis owned approximately 22 percent of Aegean. The company’s management agreed to but his stake for about 100 million dollars. The transaction created liquidity problems for the company, which were addressed by borrowing 20 million dollars from Melissanidis’ Grady Properties Corporation S.A..
The plaintiffs stress that while Melissanidis has formally left the company, there is a host of indications that he continues to exercise controls in various ways. Aegean and other companies, for example, share the same offices in Piraeus.
Additionally, the publications of the Group indicate that all of these companies, including Aegean Maritime Petroleum Network, belong to the same group of companies owned by Melissanidis.
They also underline that members of the management team of Aegean Marine also work at other companies owned by Melissanidis. They include Spyros Fokas, who is a member of the Board of the OPAP gaming company, and Spyros Gianniotis, who serves as head of financial services at Aegean Maritime, and at the same time works as a financial officer at other companies owned by Melissanidis.
The plaintiffs cite important economic transactions between Aegean Marine and other companies owned by Melissanidis. They claim that Aegean Marine purchases fuel exclusively from Aegean Oil, and that HEC charters ships from Aegean Marine at preferential prices. They also maintain that Melissanidis saddled the company with 205 million dollars, for the construction of a storage facility at the Port of Fujairah, in the United Arab Emirates.
They also charge that at the time of the announcement of the buyout of HEC, they did not fully inform shareholders regarding potential conflicts of interests related to the transaction. For example, they did not mention that the “special committee” that valuated the proposed transaction, hired the company Clarkons Patou, which has a history of business dealings with Aegean.
Also, they did not mention that Aegean and HEC operate out of the same offices in Piraeus, which are owned by Melissanidis.
One should note here that in the US, great emphasis is placed on corporate governance, so as to always provide full and documented information and disclosure to potential investors and to shareholders.
As for the terms of the transaction itself, the plaintiffs stress the fact that in 2016, Melissanidis’ stock was bought out for 8.81 dollars per share. Now, new stocks are being issued to be given in the exchange for the buyout of HEC, at the price of 4.45 dollars per share.
Hence, the question they raise is, how is it possible for management to consider undervalued the price of 8.81 dollars per share in one instance, and overvalued at 4.45 dollars per share the very next winter. They link this to an attempt to hand over control to the current management and to Melissanidis.
Describing the market reactions, they underline the drop in the share price and the assessment of the investment firm Stifel.
“In our experience of covering shipping we have seen our share of questionable deals, but this one takes the cake, in our view, and there is not a close second,” Benjamin Nolan wrote in a Stifel Research Note.
“We see so many violations of shareholder trust in Aegean’s decision to buy Hellenic Environmental Centers (HEC), that it is hard to even fathom how any transaction could possibly be worse,” Nolan said.
“By giving the founder 20 million shares, we believe it enables the company to appoint «friendly» board members who would not rock the boat and allow shady related party transactions to continue at expense of public shareholders. Also, selling shares at near all-time lows and taking on debt and capital commitments to buy an asset at 3x fair value is also not typically well received”, Stifel concluded.
They maintain that management was aware of the problems posed for shareholders if the transaction is completed.
They say that at a meeting of Konomou and Baron in New York on 26 February, Konomou acknowledged that the transaction creates problems for shareholders, “stating frankly that, if the transaction closes, you’ll be f**k*d”.
The plaintiffs are demanding a jury trial, and are requesting that the transaction be ruled illegal, and declared null and void