Frontline-Euronav Agree to Share Exchange to Create $4B Tanker Company

Three months after first announcing their intent to merge and after fighting off opposition from the largest shareholder, Euronav and Frontline agreed to the structure of the transaction which will create what the companies are calling “a leading global independent oil tankers owner and operator.” The companies announced that they agreed to a voluntary exchange offer for Euvonav’s shares setting a value on the combined company of more than $4 billion and using a structure to avoid further confrontation with the Saverys family that owns 20 percent of Euronav and opposes the merger.

Analysts point out that the merger is proceeding while the tanker sector remains at the bottom of a long cyclical downturn but with anticipation of an improving future market outlook. Hopes for a quicker market turn as European and the United States moved to ban Russian oil has not so far materialized, but with expectations of expanding supply and possible reducing sanctions on Iran and Venezuelan oil, analysts are saying the deal is well-timed. Further, there is speculation that the merger could be the start of a new wave of consolidation in the tanker sector.

“This transaction creates a clear market leader in the tanker market and will position the combined group for continued, sustainable shareholder value creation and the realization of significant synergies,” said famed investor John Fredriksen who has been driving the concept of the merger. He points to the opportunities for better fleet utilization, a scale that will give the combined company more opportunities to capitalize on coming changes in shipping, and more resources to address issues such as digitalization and the move to sustainable shipping.

Under the terms of the agreement between the two companies, Frontline will launch the tender offer conditional on it obtaining a total of 50 percent plus one share of Euronav. Frontline currently owns 18.8 percent of Euronav’s shares. Fredriksen’s company is offering an exchange ratio of 1.45 shares for each share of Euronav. The transaction will be launched likely in the fourth quarter after Frontline moves its incorporation from Bermuda to Cyprus.

Employing the exchange format for the offer, Frontline does not need the required 75 percent approval from Euronav’s shareholders. Instead, after gaining the majority position, the company intends to conduct a “simplified squeeze out,” where the new Frontline will seek to get the remaining Euronav shareholders to accept the buyout permitting the companies to complete a legal merger. Once completed, Euronav’s current shareholders would own approximately 55 percent of the combined company while Frontline’s investors will hold 45 percent of the combined company.

“The proposed combination is a huge opportunity to take a leading position in the tanker industry,” said Hugo de Stoop, CEO of Euronav who will become CEO of the new Frontline. “This transaction represents a unique opportunity to deliver substantially better service to our customers and enhanced returns to our shareholders.”

The combined group will have the industry’s largest fleets of VLCC and Suezmax tankers with management emphasizing that they are complementary platforms. The fleet will number 146 vessels consisting of 68 VLCC, 56 Suezmaxes, 20 LR2/Aframax, and 2 FSO vessels. 

Management said they anticipate an annualized cost savings of $60 million from the combined operation. They pointed to the opportunities for better utilization, the possibility of using combined voyages to create new economies for the operation, as well as economies of scale for cost savings in daily operations, dry-docking and other special projects, and financial expenses.

In May, Frontline announced that it had completed private transactions with Euronav shareholders using the exchange offer format to grow its position and leading to speculation that the companies would employ an exchange offer to complete the combination. The Saverys family had lost its bid to replace the Supervisory Board with its slate of candidates at the annual shareholder meeting clearing another hurdle toward the merger.

Analysts welcomed the news of the transaction and agreement on the structure. They point to the tanker sector as a highly fragmented market, unlike container shipping. The financial pressures along with the possible end of the long downturn in the market has analysts speculating if this is the start of the consolidation for tanker operators following the container industry, which today has a relatively small number of giant carriers that move the largest portion of containers worldwide.