Euronav Rejects Frontline's Right to Unilaterally End Merger Agreement
The disputes are continuing over the future of tanker operator Euronav following Frontline’s announcement Monday night that it would not proceed with the planned share exchange as the first step toward a merger of the companies. Caught between Frontline and the Saverys family, which is calling for changes in the management and strategy, Euronav reports it is exploring legal actions.
Euronav announced that it “rejects Frontline’s right to terminate the agreement.” The company initially acknowledged the receipt of the decision which it called unilateral from Frontline and now says following further detailed consideration with its legal and financial advisors it will take appropriate action to protect Euronav and its shareholders. The supervisory and management boards they said could potentially pursue litigation or arbitration with Frontline.
“Frontline failed to provide a satisfactory reason for its decision to pursue termination,” said Euronav in a statement issued on January 11. They are contending that there is no basis for Frontline to withdraw from the proposed combination under the terms of the agreement from July 2022. The companies at the time of the agreement had contemplated the opposition and chose to structure the transaction with a voluntary share exchange that only required 50 percent of the shares and said in the future they would look to complete the merger by forcing out any remaining shareholders.
The Saverys family, which through Compagnie Maritime Belge (CMB) is the largest shareholder in Euronav, immediately responded to Frontline’s announcement calling for new discussions with Euronav’s board. The family had rejected the merger saying they did not believe it provided a sufficient premium for Euronav and that it would not create the cost savings and benefits promoted by Frontline. The combination would have created the largest publicly-traded tanker company and the largest fleet of Suezmax tankers and VLCCs.
“The termination of the combination agreement by Frontline warrants a discussion with the Supervisory Board of Euronav about the future strategy of the company and a change in the composition of the Supervisory Board,” the family said in a statement on January 10. “CMB intends to constructively engage in a dialogue with the Supervisory Board to discuss these topics.”
Securities experts point out that the resolution will come down to the terms in the July 2022 agreement and clauses over a termination. Frontline could be required to pay a large termination fee.
Frontline in its statement and Euronav in its first response both highlighted the strong prospects for the individual companies. They pointed to the strength of the tanker markets with Euronav’s board citing analysts’ predictions of a “prolonged upcycle.”
Analysts were surprised that Norwegian shipowner John Fredriksen backed away from the Euronav deal he had been pursuing for more than a year. Speculation is centering on his potential next move either targeting other tanker operators or possibly moving to acquire vessels to take advantage of the developing market conditions.
Since the announcement Monday night, the value of Euonav’s shares recovered only modestly from an initial loss of nearly 20 percent of its value back to a current position of being down more than 14 percent. Frontline has continued to gain value with its share price currently up nearly 20 percent since it said it would terminate the agreement.