The Market Foolery crew dives into uncharted waters with Seaspan Corporation (ATCO), a major owner and operator of cargo ships. While shipping companies previously thrived moving vast quantities of goods from low-cost production centers to major consumer markets, the industry is now largely overbuilt, which hurts the value of Seaspan's key assets.
Where will the winds blow this company next? A full transcript follows the video.
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This podcast was recorded on Nov. 1, 2016.
Chris Hill: Talk to me about Seaspan. Not the cable network, but Sea-, S-E-A, Seaspan, the shipping company.
Jim Gillies: The shipping company, yes.
Hill: We were chatting briefly this morning. This is a company that I'm almost entirely unfamiliar with, but it's a company that has certainly been on your radar. I'm curious where is it right now, and what is the backstory on the CEO leaving?
Gillies: It wasn't the CEO.
Hill: Oh, OK.
Gillies: When Seaspan, it's SSW on the New York Stock Exchange. It's largely domiciled in Vancouver, Canada, but it's incorporated in the Marshall Islands, because of course it is.
Hill: Where are the Marshall Islands?
Gillies: Somewhere in the Pacific, I think.
Gillies: Basically, they own container ships. You see the pictures of these giant container ships with thousands of containers on them? They own the ships, they lease them out, and they operate them for the big shipping companies.
They reported earnings last night, and they have been struggling because the industry as a whole is overbuilt. There's too many ships, there's too much tonnage of the ships that are on the sea, and so what that's done is it's kind of knocked down the value of the ships that are coming out of the shipyards.
They used to come off the line, and the minute they'd hit the water, they're paired up with a 12-year contract, where you have 12 years of revenue already known, already guaranteed.
The problem is, lots of ships, lots of floating tonnage. You've still got the trend of moving everything from the production centers of the world -- Asia -- to the consumption centers of the world -- North America, Europe -- but there's so many ships and they've gotten so large, that the value of the shipping has gone down.
They are struggling. They're about 50% insider-owned. There's some quasi-strange deals that go on in the industry with the insiders, you're never quite sure. It's nice to see the insiders owning 50%, but you're not entirely sure whether they're aligned with you.
The CEO, he's got a job to run the business, but he gets finder's fees when the company puts a new ship on the water, so maybe they shouldn't be putting a new ship on the water because of the aforementioned overbuilding of the industry, but if he gets 1% of whatever ...
Hill: If he's got a financial incentive to get ships on the water, guess what?
Gillies: If he's got a stake, get the incentives right. Seaspan, tied to a little bit, I guess, to Valeant, with their executive departures. The most fun executive departure I've ever seen, and I say "fun" perhaps in air quotes, was with Seaspan and their now-former CFO, who departed almost a year ago.
This was basically a press release that hit the wires Monday morning, 7 a.m., backdated to Friday afternoon, 5:30 p.m., announcing the sudden retirement of the CFO as of Friday. He was 48 years old.
Now that doesn't smell at all, right? He's gone off to run his equestrian farm or something like that, but it's like oh, hang on. A 48-year-old man who has been doing really, really well in this company, well-thought of, well-spoken, suddenly retires out of the blue, and they backdate it?
You kind of wonder if this is a business, it always needs financing. In financing, it's kind of important to have a well-respected, well-thought-of CFO. Did he walk the plank, was he tossed overboard, did he leave of his own volition because he saw something bad happening? We've never gotten any answers.
But it just, to me, has always been a very odd departure.
Hill: Is that even legal? If you're a public company, can you backdate a press release on an executive departure?
Gillies: He's retired.