Robotti Calls McDermott Rights Offering a Value Transfer to Insiders

The fix Robotti proposes is narrow. Every shareholder who fully exercises its basic subscription rights should be entitled to subscribe for additional unsubscribed shares on a pro rata basis, ahead of any allocation to the backstop parties. This is a standard feature in many rights offerings. It costs the company nothing, raises the same $500 million, and does not delay the closing. The backstop parties would simply purchase whatever remains after all participating shareholders have been given the same opportunity.

Robotti is not asking the board to abandon the refinancing or reprice the offering. The letter calls on the board to act as fiduciaries for all shareholders. "Let every owner who steps up share in the value left on the table, instead of reserving it for four insiders," the letter states.

McDermott's own financial statements show the business has turned a corner. The company has more cash than debt, according to its latest filings. The rights offering memorandum itself notes that non-participating shareholders will see their voting power and economic interest "decrease significantly."

The shareholder meeting to approve the refinancing has not yet been scheduled. Robotti says it is seeking a constructive dialogue with the board before that vote. If the board adopts an oversubscription privilege, the offering becomes a more equitable capital raise. If it does not, the current structure will likely proceed, concentrating ownership among the backstop group and diluting minority holders.

Robotti has a long history in the offshore energy sector. The firm is also a large shareholder in Tidewater Inc., where it has pushed for strategic changes. Founder Bob Robotti has been active in the industry for nearly five decades. The same analytical framework the firm applies to Tidewater applies here: when a rights offering is priced far below market value and structured to benefit insiders, the real question is whether the board will act as fiduciaries for all shareholders or only for the backstop group.