Two of the largest names in tanker shipping are merging. Euronav and Frontline announced today that the companies have signed a term sheet that has been unanimously approved by both boards on a potential stock-for-stock combination between the two shipping lines.
The deal is based on an exchange ratio of 1.45 Frontline shares for every Euronav share resulting in Euronav and Frontline shareholders owning approximately 59% and 41%, respectively, of the combined group.
If the merger is approved, the entity would be called Frontline, and be headed by Euronav’s CEO, Hugo De Stoop.
This transaction would form a powerful combination at an exciting point in the cycle
Commenting on the possible combination, Frontline boss John Fredriksen said: “A combination of Frontline and Euronav would establish a market leader in the tanker market and position the combined group for continued shareholder value creation in addition to significant synergies. The new Frontline would be able to offer value enhancing services for our customers and increase fleet utilisation and revenues which would benefit all stakeholders. I am very excited and give my full support and commitment to this combined platform”.
The merger comes seven months after Fredriksen, a long term admirer of Euronav, started buying plenty of Euronav stock with the Belgian tanker firm’s founding family, the Saverys, responding by buying stock too.
A combination would create a tanker giant with a market cap if $4.2bn with a fleet of 69 VLCCs, 57 suezmaxes and 20 LR2/aframax vessels.
Lars Barstad, CEO of Frontline, said: “Frontline believes this transaction would form a powerful combination at an exciting point in the cycle. The combination would create a strong platform to further enhance shareholder value for our investors.”
The merger remains subject to plenty of agreements and approvals.
Commenting on today’s big news, Ralph Leszczynski, the head of research at broker Banchero Costa, said the combined Frontline/Euronav entity would command around 10% of the global VLCC and suezmax fleets, something he said was impressive, but was far from giving any sort of monopoly power in what remains a very fragmented market.
Suggesting tankers had bottomed out, Leszczynski said prospects ought to improve in the coming months and years.
“The orderbook for tankers is now very limited, and demolition is expected to be significant in the coming years,” Leszczynski said, adding: “Newbuilding orders are expected to remain limited given inflated newbuilding prices, which are driven by high steel plate prices and the fact shipyards are all full with orders for containerships and LNG carriers.”
At the same time, Leszczynski predicted tonne miles would increase as geopolitics change trade patterns, with Russian oil going more to India and China, and Europe sourcing more oil from the Middle East.