Hedge Funds Back Major Oil Ship Deal

December 7, 2007

With energy hedge funds enjoying strong returns in 2007, a group of hedge funds are backing an acquisition company buying nine enormous oil tankers for nearly $800 million.

Hedge funds own a large part of the float of Energy Infrastructure Acquisition Corp., according to Peter Blumen, a director of EIAC, which will become the Energy Infrastructure Merger Corp.

“Hedge funds are very interested in our structure, because we either pay them through the trust structure, or we make this acquisition, which has to exceed the trust payout for them to vote for it.”

Energy has been among the strongest-performing hedge fund strategies this year, rising more than 14% through September, according to Hedge Fund Research.

Blumen says Energy Infrastructure’s major shareholders include hedge funds Fir Tree Partners and Seraphim Management.

As part of the deal, EIAC will merge with EIMC, a wholly-owned subsidiary created to buy the large crude carriers from Vanship Holdings. Under the terms of the agreement, Vanship will also invest up to $50 million in the new venture.

Energy Infrastructure’s “management and board are experts in M&A and energy, so [the hedge funds] gave us the latitude to pursue the acquisition,” Blumen said.

The deal—EIMC is paying $778 million for the ships—follows a year and a half of work seeking to identify an acquisition target. Blumen said EIAC considered “a broad array of energy assets,” not limiting itself to crude containers. The group is now ready to “go out of M&A mode and into execution mode,” operating the ships as a going concern, Blumen said.