Nut Tree Capital Management and Caspian Capital Oppose Martin Midstream Partners L.P. Sale to Martin Resource Management Corporation

Rhea-AI Summary

Nut Tree Capital Management and Caspian Capital have announced their opposition to the proposed sale of Martin Midstream Partners L.P. (MMLP) to Martin Resource Management (MRMC) for $4.02 per common unit. The two firms, with a combined 13.2% economic exposure in MMLP, believe the offer significantly undervalues the company and its prospects. They intend to file a proxy statement and solicit votes 'AGAINST' the proposed transaction at the upcoming special meeting.

Key concerns include:

• The offer represents an Enterprise Value of only 5.1x expected 2024 EBITDA, compared to industry peers trading at 9.9x
• At a 9.9x multiple, MMLP's common units would be valued 450% higher than MRMC's offer
• The Conflicts Committee allegedly ran a 'sham process' and failed to explore superior alternatives
• Questions about the Conflicts Committee's willingness to act in the best interests of MMLP common unitholders

Positive

• Nut Tree and Caspian have a significant 13.2% economic exposure in MMLP, aligning their interests with other unitholders
• MMLP's expected 2024 EBITDA suggests potential for higher valuation
• Industry peers are trading at higher multiples (9.9x) compared to the offer's implied multiple (5.1x)
• Potential for distributable cash flow above $1.00/common unit annually in the near to medium term

Negative

• Proposed sale price of $4.02 per MMLP common unit is considered significantly undervalued
• Conflicts Committee allegedly failed to explore potentially superior alternatives
• Concerns about the independence and objectivity of the Conflicts Committee
• Potential loss of future value for MMLP unitholders if the sale proceeds at the current terms

Insights

Financial Analyst

The proposed sale of Martin Midstream Partners L.P. (MMLP) to Martin Resource Management (MRMC) at $4.02 per unit is facing significant opposition from major unitholders Nut Tree and Caspian, who collectively hold a 13.2% economic interest. This opposition highlights several critical issues:

• Severe undervaluation: The offer price represents a 5.1x EV/EBITDA multiple, significantly below the industry average of 9.9x, potentially undervaluing MMLP by up to 450%.
• Conflicts of interest: The Conflicts Committee's process and composition raise questions about its independence and commitment to maximizing unitholder value.
• Rejected superior offer: A $4.50 per unit cash offer from Nut Tree and Caspian, representing a 48% premium over MRMC's initial bid, was apparently not seriously considered.

This situation presents significant risks for current MMLP unitholders, who may be forced to sell at a substantial discount to fair value. The opposition's plan to solicit votes against the merger could lead to a protracted battle, potentially impacting MMLP's operations and market perception in the short term.

Legal Expert

The opposition to MMLP's sale raises serious legal and governance concerns:

• Fiduciary duty: The Conflicts Committee's apparent failure to fully explore alternatives or engage with a superior offer may constitute a breach of fiduciary duty to unitholders.
• Conflicts of interest: The long-standing relationships between Conflicts Committee members and MRMC's leadership create a perception of bias that could be legally problematic.
• Proxy battle: Nut Tree and Caspian's intention to file a proxy statement and solicit votes against the merger sets the stage for a potential legal battle over the transaction's fairness.

These issues could expose MMLP and its General Partner to unitholder lawsuits alleging breach of fiduciary duty and failure to maximize unitholder value. The SEC filing of opposing proxy materials will likely lead to increased regulatory scrutiny of the transaction. This legal landscape creates significant uncertainty around the deal's closure and could result in a protracted and costly legal process, potentially impacting MMLP's value and operations.

Nut Tree and Caspian Believe Proposed Sale Significantly Undervalues MMLP
and its Future Prospects

Nut Tree and Caspian Intend to File a Proxy Statement and Solicit Proxies
to Vote "AGAINST" the Proposed Sale

Nut Tree and Caspian Launch www.ProtectMMLPValue.com

NEW YORK, Oct. 22, 2024 /PRNewswire/ -- Nut Tree Capital Management L.P. ("Nut Tree") and Caspian Capital L.P. ("Caspian"), today announced that they intend to oppose the proposed sale of Martin Midstream Partners L.P. ("MMLP" or the "Company") (Nasdaq: MMLP) to Martin Resource Management Corporation ("MRMC"), an affiliate of the Company's General Partner, for $4.02 per MMLP common unit not already owned by MRMC. Nut Tree and Caspian have combined economic exposure in the Company of approximately 13.2% of the outstanding common units through certain cash-settled derivative agreements and are aligned with MMLP unitholders who are unaffiliated with MRMC in seeking to protect the long-term value of the Company.

Nut Tree and Caspian believe that the proposed sale price significantly undervalues the Company and its prospects, and that if the merger is completed on its current terms, MRMC will receive significant upside for itself that rightfully belongs to all MMLP unitholders. Nut Tree and Caspian intend to file a proxy statement with the Securities and Exchange Commission and solicit votes "AGAINST" the proposed transaction at the Company's upcoming special meeting to be held to approve the related merger agreement. 

Additional information can be found at www.ProtectMMLPValue.com.

Nut Tree and Caspian's serious concerns with the undervalued and grossly conflicted sale of MMLP to MRMC are based on the following beliefs:

• MRMC's latest acquisition proposal significantly undervalues MMLP and its future prospects. Comparable master limited partnerships, as described in MMLP's own publicly available investor presentation from May 2024, traded at approximately 8.5x expected 2024 EBITDA, whereas MRMC's offer represents an Enterprise Value of only 5.1x management's expected 2024 EBITDA. Furthermore, when referencing the same peers and the most recent equity research, that multiple has improved to 9.9x. At a 9.9x multiple, MMLP's common units would be valued 450% of what MRMC has offered.¹ Additionally, based on MMLP's own public disclosures, we believe a number of positive developments are likely to come to fruition in the near and medium term, which will not only result in distributable cash flow above $1.00/common unit annually, but also likely result in significant actual cash distributions to common unitholders—potentially as early as 2025. Nut Tree and Caspian's views on MMLP's valuation were detailed in a July 29, 2024 letter to the Conflicts Committee and issued publicly via a press release the same day.²
  
  
• The Conflicts Committee of the Board of Directors (the "Conflicts Committee") of Martin Midstream GP LLC (the "General Partner") ran a sham process that did not fully explore potentially superior alternatives to the sale to MRMC. The Conflicts Committee, which was formed to address conflicts of interest among MRMC and MMLP, failed to genuinely engage with us following our fully financed offer to acquire MMLP for $4.50 per common unit in cash, which represented a 48% premium over the $3.05 per common unit offer made by MRMC on May 24, 2024, nor did it respond to any of our diligence-related questions regarding the value of MMLP. By failing to explore the potential value flowing to MMLP unitholders under our proposal, or even to seek our views on valuation, the Conflicts Committee has brought into question its willingness to act in the best interests of MMLP common unitholders.
  
  
• The Conflicts Committee is grossly conflicted. The General Partner is wholly owned and controlled by MRMC and its subsidiaries, and Ruben Martin, III serves as Chairman of the Board of Directors of the General Partner and the President, Chief Executive Officer, and Chairman of the Board of Directors of MRMC. The Conflicts Committee is comprised of Byron Kelley (Chairman), James M. Collingsworth and C. Scott Massey, who have served with Mr. Martin on the General Partner's Board of Directors for approximately 12 years, 10 years and 22 years, respectively. The actions of the Conflicts Committee indicate to us that its members are too closely tied to Mr. Martin to protect the interests of MMLP's common unitholders.

Advisors
Olshan Frome Wolosky LLP and Latham & Watkins LLP are serving as legal counsel to Nut Tree and Caspian. 

About Caspian Capital LP
Caspian Capital LP's absolute return strategy was founded in 1997 and is focused on performing, stressed, distressed corporate credit, and value equities. Caspian currently oversees $4.6 billion in assets under management.

About Nut Tree Capital Management LP
Nut Tree Capital, founded in 2015, implements a fundamentals-based strategy focused on distressed credit, stressed/event-driven credit and value equities. Nut Tree currently oversees $4 billion in assets.

Contacts:
For Investors:
John Ferguson/Joe Mills
Saratoga Proxy Consulting LLC
(212) 257-1311
info@saratogaproxy.com

For Media:  Jonathan Gasthalter/Nathaniel Garnick
Gasthalter & Co.
(212) 257-4170

CERTAIN INFORMATION CONCERNING THE PARTICIPANTS

Nut Tree Capital Management L.P., a Delaware limited partnership ("Nut Tree"), and Caspian Capital L.P., a Delaware limited partnership ("Caspian"), together with the other participants named herein, intend to file a preliminary proxy statement and accompanying proxy card with the Securities and Exchange Commission ("SEC") to be used to solicit votes in connection with their opposition to proposals to be presented at a special meeting of common unitholders of Martin Midstream Partners L.P., a Delaware limited partnership (the "Company"), in connection with the Company's agreement and plan of merger with Martin Resource Management Corporation and certain of its affiliates.

NUT TREE AND CASPIAN STRONGLY ADVISE ALL COMMON UNITHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST. REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY SOLICITOR.

The participants in the proxy solicitation are anticipated to be Nut Tree, Nut Tree Capital Management GP, LLC, a Delaware limited liability company ("Nut Tree GP"), Jared R. Nussbaum, Caspian, Caspian Capital GP LLC, a Delaware limited liability company ("Caspian GP"), Adam Cohen and David Corleto (collectively, the "Participants").

As of the date hereof, the Participants have combined economic exposure in the Company of approximately 13.2% of the outstanding common units representing limited partnership interests of the Company ("Common Units"), through notional principal amount derivative agreements in the form of cash settled swaps with respect to the Common Units ("Derivative Agreements"). Funds advised by Nut Tree are party to Derivative Agreements with respect to an aggregate of 3,245,769 Common Units, and funds advised by Caspian are party to Derivative Agreements with respect to an aggregate of 1,916,597 Common Units. Funds advised by Caspian also hold $93.15 million principal amount of the Company's senior secured second lien notes maturing on February 15, 2028. Nut Tree GP serves as the general partner of Nut Tree, which serves as the investment advisor to certain funds. Mr. Nussbaum serves as the Chief Investment Officer and Managing Partner of Nut Tree and sole member of Nut Tree GP. Caspian GP serves as the general partner of Caspian, which serves as the investment advisor to certain funds. Messrs. Cohen and Corleto each serve as a control person of each of Caspian and Caspian GP.

¹ See Wells Fargo Midstream Energy Weekender: Q3'24 Midstream Earnings Preview October 11, 2024, pg. 7. Permission to use the Wells Fargo Midstream Energy Update was neither sought nor obtained.

² https://www.prnewswire.com/news-releases/nut-tree-capital-management-and-caspian-capital-increase-offer-to-purchase-martin-midstream-partners-lp-to-4-50-per-common-unit-in-cash-302208901.html 

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SOURCE Nut Tree Capital Management and Caspian Capital

FAQ

What is the proposed sale price for Martin Midstream Partners L.P. (MMLP)?

The proposed sale price for Martin Midstream Partners L.P. (MMLP) is $4.02 per common unit not already owned by Martin Resource Management (MRMC).

Why are Nut Tree Capital Management and Caspian Capital opposing the sale of MMLP?

Nut Tree and Caspian are opposing the sale because they believe the proposed price significantly undervalues MMLP and its future prospects, potentially depriving unitholders of substantial value.

What is the combined economic exposure of Nut Tree and Caspian in MMLP?

Nut Tree and Caspian have a combined economic exposure of approximately 13.2% of the outstanding common units of MMLP through certain cash-settled derivative agreements.

How does the proposed sale price compare to industry peers for MMLP?

The proposed sale price represents an Enterprise Value of 5.1x expected 2024 EBITDA, while industry peers are trading at approximately 9.9x expected 2024 EBITDA, suggesting MMLP is significantly undervalued.

What actions do Nut Tree and Caspian plan to take regarding the MMLP sale?

Nut Tree and Caspian intend to file a proxy statement with the SEC and solicit votes 'AGAINST' the proposed transaction at MMLP's upcoming special meeting to approve the merger agreement.