Frontline Becomes Largest Publicly-Traded Tanker Firm in Euronav Carve Up
Frontline is poised to become the world’s largest publicly-traded pure play tanker company as John Fredriksen and the Saverys family agreed to a deal to carve up Euronav to settle the 18-month long “strategic and structural deadlock,” as the two shareholders battled for control. John Fredriksen got what he wanted which was to grow the tanker operations positioning the company for what he sees as the strong opportunities in the market.
Frontline, CMB, and Euronav today confirmed the terms of the agreement which settles the long-running dispute and lets both shareholders pursue their individual strategies. Frontline has agreed to sell its 57 million shares of Euronav, which represents just over 26 percent of the company to CMB for $18.43 per share. In exchange, Frontline acquires 24 VLCC tankers and settles all the outstanding disputes over the merger with Euronav that it walked away from at the beginning of 2023. They noted that the ongoing arbitration would have posed a significant obstacle to the resolution of the deadlock.
“This transaction fortifies Frontline’s position as one of the leading tanker companies in the public domain and is expected to be highly accretive on earnings and free cash flow per share,” Frontline writes in its statement announcing the deal.
Fredriksen has repeatedly said he believes the tanker market is at the beginning of a strong upcycle. Today he said this agreement was struck at “an opportune time in the cycle.” He highlighted to shareholders that the company is significantly expanding its exposure specifically in the VLCC segment.
Under the terms, Frontline acquires 24 VLCCs with an average age of 5.3 years for a total cost of $2.35 billion. The company currently has 22 VLCCs as well as 25 Suezmax, and 18 Aframax/LR2 tankers. The deal increases the company’s dwt by 57 percent while its sailing days are increased by 37 percent. They are saying it cements the company’s position as the “leading tanker powerhouse.” After the transaction, Frontline will grow from 65 to 89 vessels.
Lars Barstad, Chief Executive of Frontline Management said, “The structure of the transaction will significantly increase Frontline’s operating leverage as we enter a period of historical low deliveries of new capacity in the tanker market.”
In their presentation to investors, Frontline highlights that the orderbook in the tanker segment is the lowest of any portion of the commercial shipping industry. VLCC orders they said are at their lowest levels since the 1980s while the existing fleet is aging and new regulations are pending that will impact older ships. They also point out that global events are impacting the oil markets with the Russian sanctions creating inefficient trading patterns while Chinese oil imports are moving to all-time highs.
Frontline calls the acquisition price “attractive,” while Euronav and CMB highlight the vessels being sold at fair market valuations. Frontline highlights it will have proceeds of $252 million from the share sale, and will get $1.4 billion of financing from banks as well as financing from its largest shareholder. Of the vessels they are buying, 22 were built in South Korea and nine are fitted with scrubbers. The oldest of the vessels was delivered in 2015 and three of them were delivered this year. Each is around 300,000 dwt.
Frontline expects the transaction will be completed in the fourth quarter of 2023 and points to the fact all the vessels are currently operational. They believe it gives them a “huge cash generation potential.” Investors agreed driving the stock price up another four percent toward the company’s 52-week high.