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Martin Midstream (NASDAQ:MMLP) is at present the main focus of two separate non-binding affords. One of many affords is a $3.05 per unit money provide from Martin Useful resource Administration Company, and the opposite one is a $4.50 per unit money provide from Nut Tree Capital Administration and Caspian Capital.
Martin’s Q2 2024 outcomes have been stable, with its adjusted EBITDA barely exceeding expectations regardless of a $2+ million detrimental impression from a few accidents.
This reinforces my perception that Martin’s intrinsic worth is round $4.35 per unit (primarily based on its projected year-end 2024 internet debt), whereas it could possibly cut back its internet debt by $1 per unit in 2025.
Negotiations are nonetheless ongoing, however I can envision a believable situation the place Martin Useful resource Administration Company will increase its bid to $4.00 to $4.50 per unit and a deal will get achieved round late 2024 to early 2025.
Present Provides
Nut Tree Capital Administration and Caspian Capital elevated their provide for Martin Midstream’s widespread items to $4.50 in money in July 2024. They beforehand made a money provide of $4.00 per unit in June 2024.
Martin Useful resource Administration Company (which owns Martin Midstream’s normal companion by way of subsidiaries) made a money provide of $3.05 per unit again in Could 2024. The Q2 2024 earnings name talked about that negotiations have been ongoing between Martin Midstream Companions’ Conflicts Committee and Martin Useful resource Administration Company’s advisory agency. Nevertheless, there was no timeframe about when these negotiations could be accomplished (whereas the negotiations may additionally fall by way of).
Martin Useful resource Administration Company indicated that it was solely inquisitive about buying all of Martin Midstream’s excellent widespread items, and that it was not inquisitive about promoting its stake in Martin Midstream or pursuing different strategic options.
Martin Useful resource Administration Company successfully owns roughly 26% of Martin Midstream’s widespread items, together with the quantity owned by Ruben Martin III.
I’m reminded of one other instance the place an MLP was acquired by its normal companion. Blueknight Power Companions acquired a proposal from its normal companion Ergon in October 2021 and finally agreed to an improved provide from its normal companion in April 2022, six and a half months later.
An analogous timeline would lead to some information in December 2024, though every state of affairs is completely different.
Accident Prices
Martin’s Q2 2024 outcomes took a $2 million hit from a few accidents through the quarter. Martin’s marine transportation division had a $0.5 million casualty loss reserve attributable to a Could 2024 bridge allision (an accident involving just one shifting object) in Galveston, Texas. Within the Galveston incident, a tugboat misplaced management of a few barges and one among Martin’s barges ended up hitting and damaging a bridge. The $0.5 million represents the sum of two associated insurance coverage deductibles.
Along with the $0.5 million casualty loss reserve, Martin’s marine transportation division additionally noticed decrease fleet utilization as a result of collision.
Martin’s Terminalling and Storage division noticed a $1.5 million detrimental impression from the crude oil spill from the pipeline connecting Martin’s Sandyland Terminal to its Smackover refinery.
The spill was estimated at below 2,500 barrels of oil, and the $1.5 million represents the deductibles below the insurance coverage insurance policies.
Q2 2024 Outcomes
Martin Midstream’s Q2 2024 outcomes have been stable because it generated $31.7 million in adjusted EBITDA versus steering for $31.2 million in adjusted EBITDA. This got here regardless of the $2+ million hit from the accidents.
Martin’s sulfur providers division rebounded after some challenges in Q1 2024, whereas Martin’s land transportation division continued to be sturdy.
Martin’s marine transportation division missed its EBITDA steering by $0.9 million, attributable to the $0.5 million in insurance coverage deductibles and enterprise disruptions attributable to the accident.
Martin’s Q2 2024 EBITDA (mmlp.com (Q2 2024 Presentation))
Martin’s Terminalling and Storage division’s outcomes have been $1.4 million lower than its EBITDA steering, and this may be attributed to the $1.5 million in insurance coverage deductibles associated to the oil spill.
Notes On Valuation
I beforehand estimated Martin’s worth at round $4.35 per unit primarily based on an EV to 2025 adjusted EBITDA a number of of 5.0x, together with $425 million in year-end 2024 internet debt.
Martin’s enterprise outcomes are usually monitoring based on expectations, in order that estimated worth stays unchanged for now. Martin’s 1H 2024 EBITDA ended up about $0.6 million under its preliminary steering, but in addition was affected by $2.0 million in accident-related fees.
If Martin would not improve its distribution, it seems doubtlessly able to lowering its internet debt by $1 per unit (near $40 million) in 2025. This may make its worth roughly $5.35 primarily based on the same a number of and $385 million in year-end 2025 internet debt.
Assuming that Martin’s enterprise performs as at present anticipated throughout the remainder of 2024 and 2025, it will seemingly get dearer for Martin Useful resource Administration Company to mount a future bid if it ends negotiations with out a deal.
Provided that Nut Tree Capital Administration and Caspian Capital’s present $4.50 provide is 48% greater than Martin Useful resource Administration Company’s unique $3.05 provide, it additionally appears fairly unlikely that the unique $3.05 provide could possibly be justifiably accepted.
Since Martin Useful resource Administration Company is tired of promoting its items, various affords are unlikely to be accepted until there was a considerable overpayment concerned.
Martin Midstream may doubtlessly be capable of justify accepting a proposal from Martin Useful resource Administration Company that no less than matches the primary provide from Nut Tree and Caspian Capital.
Thus, I consider there’s a good probability that Martin Useful resource Administration Company will increase its provide and {that a} deal finally will get made within the $4.00 to $4.50 per unit vary by late 2024 to early 2025.
That might be comparatively honest (in comparison with my estimated worth for Martin) and would nonetheless enable Martin Useful resource Administration Company to get the advantages of the projected improve in free money move subsequent 12 months.
Conclusion
Martin Midstream has attracted a competing bid that’s now 48% greater than Martin Useful resource Administration Company’s unique bid. Martin Useful resource Administration Company’s shut ties to Martin Midstream imply {that a} competing bid is unlikely to be accepted until there was a considerable overpayment.
The competing bid does imply that Martin Useful resource Administration Company seemingly wants to extend its bid if it needs to get a deal achieved. I estimate Martin Midstream’s honest worth at round $4.35 per unit primarily based on its projected year-end 2024 internet debt, and consider {that a} $4.00 to $4.50 per unit provide from Martin Useful resource Administration Company could be sufficient to get a deal achieved.
