Odyssey Marine (OMEX) is the treasure hunting company that famously recovered a massive treasure in May 2007 code-named the Black Swan. An external expert estimated the value of the recovered treasure at ~$500M. The stock price of Odyssey briefly surpassed $9 on the announcement of the recovery only to return to pre-Black Swan levels after Spain sued Odyssey Marine claiming rights to the treasure.
On Tuesday, Odyssey Marine announced an extensive deal with Discovery Communications (owner of the Discovery Channel) for a prime-time 11 part series. The production company, JWM, has an option to extend the term for seven additional one-year terms. Think “Deadliest Catch,” but with shipwreck recovery.
Odyssey Marine receives 3 different benefits from its deal with Discovery Communications. The 8K filed by Odyssey Marine this morning provides some additional detail..
(1) Odyssey will receive “over $2M” in the first contract year. This amount will cover a good portion of the operating budget of Odyssey’s recovery ship, the Odyssey Explorer, for the 2008 recovery season. While this “over $2M” amount is nice, it has little to do with the actual value of the Discovery/Odyssey deal to Odyssey.
(2) Discovery Networks reaches 1.5 billion people worldwide. The program will greatly raise the profile of Odyssey Marine and show people the expertise and skill that the Odyssey team possesses in underwater archeological recovery. The Odyssey team is comprised of best-in-the-world experts and seeing what they do and how they approach their profession will further legitimize Odyssey Marine as the leader in its field. This will likely facilitate additional partnerships with country governments, like that one that is in place with Great Britain pertaining to the recovery of The Sussex.
(3) Odyssey is in the business of selling coins and artifacts that are recovered from the shipwrecks. The Discovery/Odyssey series will tell the stories of several of these shipwrecks to the millions of people that will see the programs. Important to note, that the Discovery Channel frequently shows repeats of its best programming. Undoubtedly, this program will increase demand for the coins and artifacts from these shipwrecks. Odyssey will benefit from selling more of the coins and artifacts, more quickly, at higher prices.
Some comments on the legal case with Spain
As of the close on Friday, June 23rd, the stock price was at $4.54, which is the same level that it was at BEFORE the announcement of the recovery of the Black Swan treasure. That implies that the market is giving Odyssey no chance to keep any of the Black Sawn treasure. Spain has been quite vocal in the press talking about how Spanish galleons are part of Spain’s heritage and therefore, Spain demands the return of the coins and artifacts from Spanish shipwrecks. Oddly, Spain seems to neglect to acknowledge that the gold and silver coins and gemstones from the Black Swan were coming back from the New World where Spain enslaved and killed countless people in South America during its colonial period. Grand standing aside, what actually will dictate the outcome of the trial is admiralty law.
Spain can only refuse salvage on a vessel that is “sovereign immune.” In order for a vessel to be sovereign immune, it must have been a Spanish warship that was 100% engaged in non-commercial activity at the time of its sinking.
Spain has several severe challenges with its legal case. First, Odyssey Marine did not recover a single item from the site to indicate that there was a ship at that site. The Black Swan recovery site is just a debris field. There is not a canon, a ship’s bell, moorings, the ship’s spine, or anything else to indicate that the site is that of a shipwreck. It is well-known that during battle, if a ship was taking on water or needed to lighten its load so that it could better escape, it would throw the heaviest items overboard. Odyssey Marine recovered 17 tons of coins and artifacts from the site.
Even if Spain is successful in proving that the Black Swan site is that of a shipwreck, Spain has the burden of proof to prove which shipwreck it is. Spain claims that it is the Nuestra Senora de la Mercedes which sunk in 1804. Odyssey claims that there are some pieces of data that support that conclusion, but other pieces of data that do not support that conclusion.
Even if Spain is able to prove that the Black Swan site is (1) that of a shipwreck and (2) that the shipwreck is the Mercedes, Spain must then prove that the Mercedes was subject to sovereign immunity. There is no debate that the Mercedes was a Spanish warship. However, on the return voyage from the New World upon which it was sunk, documentation exists that demonstrates that the majority of the cargo on the ship was commercial. Given that the Mercedes was not on a 100% non-commercial mission, the shipwreck site cannot subject to sovereign immunity. Instead, if Spain is successful is proving that the site is that of the shipwreck of the Mercedes, the recovery would come under salvage law. Under salvage law, approximately 90% of the recovery is typically granted to the salvor. In this case, the salvor is Odyssey Marine. The remaining 10% would be shared among any legitimate claimants.
So…where are we now? Odyssey Marine just announced game-changing deal with Discovery Communications that will dramatically raise the company’s prominence and profile and pay a good portion of its operating budget for the remainder of 2008. Additionally, given that the stock price is the same as it was before the announcement of the Black Swan recovery, you are getting a free call option on Odyssey prevailing at trial or striking a deal to settle with Spain. If Odyssey were to prevail at trial or strike a settlement with Spain, then look for the stock to move aggressively to the upside.
Either way….Odyssey Marine became a lot more valuable today after the announcement of the Discovery/Odyssey deal.
Disclosure: Author has a long position in OMEX
Via Long Investment Ideas from Seeking Alpha:
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