Crown Ocean – a white knight for Bowleven?

I first made contact with Crown Ocean in late August 2016. I met the principals of this private investment company in late September. I’ve since continued correspondence with them to learn more about their intentions towards Bowleven. Understandably, Crown Ocean has been cautious about sharing specific details of what it might have in mind for the company, meaning much of my analysis at this stage is educated guesswork. However, there are some publicly known facts about Crown Ocean’s actions, which give Bowleven’s shareholders some clues as to its intentions.

When I first introduced myself to Crown Ocean I pointed out that it had bought its stock on the open market (it issued the first TR1 on 03 June). I couldn’t believe under any circumstances that Crown Ocean had done this with a mind to supporting the current board. The performance of Bowleven’s directors has been truly miserable. The fact that the company has traded at such a discount to its cash position for so long reflects what little faith the market has in the current team.

Since my initial contact, Crown Ocean tried to put forward resolutions at the company’s AGM to give shareholders the opportunity to vote on the appointment of some new directors. Bowleven’s board rebuffed this attempt, on what appeared to be a spurious technicality about the validity of the resolutions (announcements here and here).

Crown Ocean’s next move was to vote against the reappointment of CEO Kevin Hart and COO David Clarkson at December’s AGM. Hart and Clarkson survived with a thin margin of support, but Crown Ocean did manage to defeat the resolutions granting Bowleven’s board the authority to issue new shares and to continue the share buyback programme. The full voting record at the AGM can be read here.

Taken together, these actions by Crown Ocean seem to be a clear indicator of its stance towards the current board. By removing the directors’ authority to issue new shares or to buy back more of the existing issued share capital, using company funds, Crown Ocean has tied the board’s hands. There is very little the directors can now do to resist a possible action to remove and replace any of them.

In the event Crown Ocean requisitions an EGM to seek boardroom change at Bowleven, the critical question facing private shareholders will be, “how trustworthy is Crown Ocean?”

With its $99million cash balance (as at 31 October 2016) and 20% retained stake in Etinde, Bowleven has highly attractive assets. Little is known about Crown Ocean. Its principals will have to be more proactive in building trust within the market to convince shareholders of the integrity of any proposals. With this being AIM there are many risks in this sort of situation for ordinary shareholders.

However (and this is a “however” laced with health warnings), preliminary investigations into the background of Crown Ocean’s principals reveals no immediate red warning flags. In fact, the indicators suggest they are genuine value investors.

Of course, it is too early to say with any real degree of confidence the extent to which a plan from Crown Ocean could be trusted. It hasn’t even announced its intentions towards Bowleven nor has it presented an alternative vision for the company yet. At this stage it is guesswork that it is going to. While the logical conclusion drawn from the manner in which Crown Ocean has positioned itself suggests it is ready to make a move, nothing can be certain.

If Crown Ocean ever does launch a value-releasing activist campaign, everything will hinge on the quality of the proposals it puts to shareholders to vote on. As it showed at the AGM, Crown Ocean doesn’t have a large enough stake in Bowleven to force change at the company on its own. It will need external support from other shareholders. To win this support, Crown Ocean will need to convince enough shareholders that it is indeed the white knight this company so badly needs.