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Great Lakes Dredging looks great
Defense Market Report
Exclusively for InvestorIdeas.com
By James Smith
January 31, 2007
Chicago-based Great Lakes Dredge & Dock Corporation is the largest dredging contractor in the US and one of the largest in the world. The Company is also a major seaport contractor, a sector very much under the microscope after the DP World fiasco of last year. The Company is a major contractor for the US Army Corps of Engineers and looks set for a long and profitable run.
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In late December, a merger was announced between publicly traded “blank check company” Aldabra Acquisition Corporation and GLDD Acquisitions Corporation, parent company of Great Lakes. Subsequent to the merger, Aldabra changed its name to Great Lakes Dredge and Dock Corporation, with the Company’s common stock and warrants (to purchase common stock) traded on the Nasdaq (GLDD).
Aldabra Acquisition Corporation was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an unidentified operating business. During February 2005, Aldabra raised total gross proceeds of US$55.2 million in its initial public offering (IPO).
A complicated restructuring of Great Lakes began in the early 1990s, during which ownership passed among private equity firms and a buyout shop.
The approximately USD50 million of IPO proceeds, held in a trust account in the two years subsequent to the Aldabra IPO will gain Aldabra shareholders a 28 per cent stake in the newly valued Great Lakes. Aldabra issued 28.8 million shares to GLDD stockholders in the merger, comprising the 72 per cent balance of the equity: 67 per cent to Madison Dearborn and 5 per cent to company management.
Cashflows from Great Lakes Dredge & Dock Co have reflected the adjustment to a new business mix as this venerable US company pursues new opportunities at home and abroad. Ratios of gross profit/revenue and EBITDA were lower in 2004 and 2005 than in 2001 to 2003. The slowdown in the US government dredging and maintenance business – perhaps stemming from money diverted for US military needs -- and the timing differences in the Company’s funds flows have created short-term cash vacuums.
While Great Lakes had assumed substantial debt the USD50 million infusion of escrowed cash from Aldabra will go towards an instant reduction in Great Lakes’ outstanding debt, which originated with its USD60 million revolver, expiring in 2008. Liabilities also include a Libor-based equipment loan, with USD17.55 million outstanding at the end of 2006. Interest savings on term debt will be approximately USD4 million annually.
At midday on January 25, the company’s shares were trading at US$6.78 per share, against a 52-week high of US$7.50 and a 52-week low of US$5.00.
On closer inspection, Great Lakes is actually caught among a number of newsworthy currents. These include port deepening to support mega-containerships, such as Maersk’s Pier 400 in Los Angeles and the Arthur Kill in New York Harbor; the infrastructure boom in the Emirates, including the Durrat island development; and lengthy Diyaar Al Muharraq contracts in Bahrain .
The company is also tied to the importation of liquified natural gas (LNG) into the US Gulf of Mexico through high-profile undersea construction associated with the Freeport and Golden Pass LNG terminals. Appropriations for deepening of strategic ports in the
Disclaimer
James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment.
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www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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