Frontline Increases Pressure on Euronav to Complete Merger Negotiation

In an apparent move to apply further pressure to move the proposed tanker mega-merger forward, Frontline announced over the weekend that it has acquired nearly six million additional shares in Euronav, or nearly an additional three percent of the target of the merger. John Fredriksen continues to accumulate shares while saying they are making progress in the negotiations, but shareholders reacted negatively to today’s news driving Frontline’s share price down by nearly 10 percent in Oslo on May 30.

In its latest update, Frontline said, “positive volatility has returned to the tanker market in what Frontline believes is the early phase of a cyclical recovery for the industry coinciding with a historically low orderbook.” Citing what they believe is the beginning of a long-term positive market trend the company reiterated its belief in the merits of the combination to create a leading global independent oil tanker operator with the largest VLCC and Suezmax fleet.

Frontline, which already owns nearly 12 percent of Euronav’s shares reported it has agreed to acquire a total of 5.96 million shares representing an additional 2.95 percent of the outstanding shares of Euronav. The acquisition is being completed in a privately negotiated swap transaction for shares of Frontline and when completed will give Fredriksen control of 14.95 percent of Euronav’s outstanding shares.

Revealing the agreement to acquire the additional shares, Frontline also wrote in its statement, “Frontline and Euronav are working extensively to conclude due diligence and finalize an appropriate transaction structure...The parties have identified significant operational and administrative synergies, and many of these can be addressed in parallel with the steps towards a full business combination.”

News of the transaction was seen as the latest sign that shareholders are supporting the transaction. They also recently sided with Frontline and Euronav’s management at the annual meeting voting down an opposition slate of directors and proposals by the Saverys family meant to derail the merger talks. While analysts viewed the news as another sign of momentum building for the merger, they noted that the share swap was being completed at a slight discount to the proposed merger valuation. The market responded, possibly due to the 4 percent increase in Frontline’s shares to complete the swap for Euronav’s shares, with a strong selloff in Frontline’s shares driving its stock price down nearly 10 percent. 

The selling came despite additional signs that Frontline was tightening its grip on Euronav. They said that under discussion is a voluntary exchange offer by Frontline for Euronav shares as a first step in the merger. They indicated that Frontline would then consider setting the minimum acceptance ratio for such an offer as low as 50.1 percent, including shares they already owned, which analysts note would further facilitate the completion despite the opposition to the deal.

Bloomberg called the current moves further steps to isolate the Saverys family, which as the largest shareholder in Euronav has continued to oppose the deal proposing an alternative merger with Compagnie Maritime Belge. The family controls just under 20 percent of the shares of Euronav but could be blocked from preventing the merger by Fredriksen’s latest steps. 

Frontline said that more details on its proposals will be shared when the combination proposal has been finalized and can be announced to the market.