BlackRock is Trying to Steal GasLog and Why You Should Care

Disclaimer: This post does not constitute financial advice. Author has a long position in Gilead, but no position in GasLog. Do your own due diligence before making an investment.

This morning I made coffee, checked Twitter, then spat out my coffee.

Several of the people follow were talking about a GasLog buyout. I was vaguely aware of this company because I follow a lot of shipping investors. (Once upon a time I was invested in some different shipping companies.)

Shipping is a pretty specialized niche, and the investors that buy cargo ships are often involved in other shipping stocks like oil, LNG, etc.

At first, I was happy for my fellow investors because buyouts mean usually mean big payouts. Then I saw it wasn’t a merger or a buyout buy a larger firm. The “buyout” was BlackRock taking the company private at $5.80 a share. (17ish% premium over Friday’s close, a laughable premium in any industry.)

As soon as I saw that it was BlackRock I turned to my wife and said, “I bet you if I look at the chart then over the last few years the company’s stock was obliterated.”

Low and behold, here’s what the five-year chart looks like.

On November 1st, 2018, the stock was trading at $20.76.

On October 1st, 2020, the stock was trading at $2.38.

Yes, some of this decline is due to the cyclical nature of shipping. When times are good, owners buy too many ships because they’re flush with cash. This creates an excess supply of ships which lowers shipping rates. When shipping rates get too low, shipping companies are forced to scrap their old ships. They also stop ordering new ships.

After a few years this creates a lack of supply, and rates start going up again.

This cycle has happened before and will happen again. Check out Maritime Economics the 3rd Edition for everything you need to know about shipping. (This is a long read.)

Did GasLog deserve to be crushed down to $2.38 while they have a book value of $6.50? Absolutely not. Shipping companies (without a ton of debt) have absolute floors because the ships can always be sold, either to other companies or for scrap. Ships are not like “goodwill” or “inventory” on a balance sheet. A shipping company’s balance sheet is often close to their true value.

Shipping rates are not in the doldrums. They’re not at all-time lows. If vaccines are effective, then the demand for commodities like oil and gas will likely return. GasLog is poised to take advantage of this. Their stock could easily return to $10, $15, or $20. (Inflation adjusted, the peak in 2018 was roughly $23.82.)

But ordinary investors will never profit from this because BlackRock is taking the company private at $5.80.

This is insane.

Even if you’re not invested in GasLog, this behavior by BlackRock should concern you. If BlackRock can do this to GasLog, they can do this to any other company.

Even if you have diamond hands, you will still lose.

The only people that won in this buyout were the investors that bought GasLog under $5.80. Which is probably mostly BlackRock and their crony friends.

BlackRock might have shorted company down to $2.38 and then started buying.

If every investor doesn’t protest this buyout then they’re just asking for it to happen to them.

When BlackRock can do this to an undervalued stock, then value investing is dead. Value investors don’t buy stocks for $5 and hope to sell for $5.80. They buy good companies and hope to hold on to them for a long time. Years, decades, or maybe even forever.

BlackRock isn’t just to blame here. GasLog management should also be roasted. This appears to be a violation of their fiduciary responsibility to shareholders.

The SEC should investigate this. If BlackRock is found to have been shorting GasLog on the way down, the merger should be blocked. If GasLog management is found to have made side deals at the expense of ordinary investors, they should be charged.

Otherwise, it’s like a private company burning down most of a city, then once property values have plummeted, stepping in and offering the city council a fixed amount of money to buy all the property in the city. Homeowners don’t get a choice whether to sell or not. Meanwhile, a recovery is underway. Home prices are expected to rebound. But they’re being forced into selling their house for 25 cents on the dollar.

If this was housing there would be riots, but since it’s an obscure shipping stock, there doesn’t seem to be much uproar.

But there should be.

This buyout is theft.

There’s nothing I hate more than seeing big companies walk all over the little guy.

In the past few months, I’ve been investigating companies that look like they’re being manipulated. (It started with Gilead Sciences.) One thing I’ve found in common, is that lot of these manipulated companies have ties to BlackRock. (They’re usually a large stakeholder.)

What I think is happening is this:

BlackRock might be paying a troll factory to post negative comments about a stock. This creates negative sentiment which leads to selling. Which triggers algorithms and leads to more selling. Meanwhile, BlackRock might be shorting the stock. This sends the stock to all time lows, and then BlackRock probably buys all they can. Or in the case of GasLog, they buy the entire company.

The GasLog deal is the worst example of Wall Street fraud and treacherous behavior by management that I have ever seen in recent memory.

Management should be investigated for side deals. Why are they selling so cheap? What else are they getting? Were they promised cushy positions in the new GasLog? Spots on the board of directors of other companies?

This entire deal is completely nuts because it appears to be legal theft.

Everyone should protest this. Post comments on all the message boards. Contact the SEC. Contact your representatives. Contact news agencies.

If this buyout is allowed to proceed at this ridiculously low price, then no company is safe.

Otherwise, it becomes a case of, “First they came for GasLog and I said nothing…”

This era of investing will one day be regarded as the age of fraud. While I won’t be opening a position in GasLog, I am hoping that either the buyout is called off, or BlackRock is forced to pay a much higher price.

As of this writing, the stock is trading at $5.85, which is 5 cents higher than the buyout price, which to me says many investors feel as I do.

Good luck out there.