Dry Bulking Up

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Since the Baltic dry index peaked around late October, global shipping rates for BHP Billiton's (NYSE: BHP) coal and Vale's (NYSE: RIO) iron ore have plummeted. So, too, have the share prices of the dry bulk shippers.

Quintana Maritime (Nasdaq: QMAR) has played the volatile shipping market conservatively, by chartering most of its fleet at fixed long-term rates. If this company was even close to fairly valued back in October, it has been inexplicably beaten down along with its spot-market peers. Even an announced strategic review process has not saved the shares.

Things may have looked hopeless when Quintana announced last Tuesday that it hadn't found a buyer for the company. But one company finally came to its senses this past weekend and made an acceptable bid.

Excel Maritime (NYSE: EXM), the original gangsta of U.S.-listed dry bulkers, has offered about $26.50 in cash and shares to acquire Quintana, and the latter's board supports the deal. This would edge out DryShips (Nasdaq: DRYS) and Navios Maritime (NYSE: NM) to create the largest such company by tonnage traded on an American exchange. It would also squish together two somewhat different operating philosophies.

The analysts on the conference call seemed delighted by the deal, but I'm not sure how other Quintana shareholders will view the proposal. They get about 55% economic ownership of the new Excel, but only about 13% of the voting rights. Also, if they were attracted to Quintana's time charter model, I don't know why increased spot-market exposure through Excel would suddenly sound appealing.

This isn't as off-the-deep-end as the recent DryShips diversion, and it looks great for Excel, but the synergies for Quintana shareholders seem slim. At the very least, they will get their capable chief executive at the helm of the combined company, and there is plenty of flexibility to steer the new Excel closer to Quintana's operating model of conducting sale/leasebacks on older ships, and chartering out a high percentage of the fleet.