Longtime Offshore-Energy Investor Robotti & Company Calls on McDermott Board to Let All Shareholders Participate Equally in Rights Offering

Robotti & Company, a ~2% McDermott shareholder, urged McDermott to amend its pending refinancing/rights offering by adding an oversubscription privilege for all participants, arguing the $1.50 rights price massively undervalues the recovering business. Robotti cites trailing-12-month revenue of ~$10B (vs. $8.2B in 2024), ~$489M EBITDA, ~$17.6B backlog, and net-cash versus debt, while claiming the offering implies only ~$51M total equity value versus a ~$970M fully diluted market cap implied by the stock’s trading. The proposal includes up to 333,333,350 new shares versus 28,574,495 currently outstanding and reserves unsubscribed shares for four backstop investors, which Robotti says concentrates ownership among insiders and dilutes non-participants by ~92.1%.

Analysis

This is less about operating momentum than about who captures the financing convexity. A deeply discounted recap in a thinly traded name effectively creates a transfer payment from nonparticipants to the backstop group; that can be value-accretive for the enterprise while still being toxic for minority holders. In practice, that means the near-term winner is the capital provider with governance leverage, while the loser is any holder without the ability or willingness to follow on at size.

The first-order market reaction should be noisy and short-lived; the real catalyst sits in the 1-8 week window around board response, amendment language, and shareholder process. If the company adds an oversubscription feature, the governance overhang compresses quickly and the stock can re-rate on de-risking rather than on the original pricing dispute. If management refuses, the risk shifts from valuation to execution: litigation, delay, and a higher probability that the financing terms themselves become the story, which can keep the equity pinned even if the underlying business is improving.

The contrarian point is that the market may be over-indexing on the dilution optics and underweighting the existential benefit of closing a balance-sheet repair in a cyclical industrial. If the implied equity value is wrong by even a wide margin, a successful recap can create a cleaner, less levered claims structure and a much better setup 6-18 months out. But that upside only matters if the capital raise is viewed as fair enough to be durable; otherwise, the business improvement gets monetized by the backstop rather than by the public float. For sector expression, cleaner offshore beta via SUBCY or TDW is preferable to owning the governance problem in MCDIF.

Key Decisions for Investors

• Do not chase MCDIF ahead of the board response; treat this as a governance/event-risk name, not a clean fundamental long, until the subscription mechanics are clarified.
• If the company formally adds an oversubscription privilege or an independent fairness process, consider a small tactical long in MCDIF for a 1-3 month de-risking re-rating; invalidate if the financing is still framed as insider-favorable or closing slips materially.
• Prefer liquid offshore recovery exposure via SUBCY or TDW over MCDIF for 6-18 month cycle participation; those names give the sector torque without the recapitalization overhang.
• Set an alert on the rights-offering amendment / shareholder-meeting timeline: if no change is made and litigation risk rises, fade any strength in MCDIF into the announcement window.
• If you need to express the view with less idiosyncratic risk, use a relative-value basket: long cleaner offshore names versus MCDIF on any financing-driven rally, with the thesis invalidated if McDermott's board materially improves minority holder economics.