Frontline-Euronav merger: Countercyclical transaction to create long-term value for shareholders
On 7 April 2022, Frontline Limited (FRO) and Euronav NV (EURN) announced that the companies are in the process of a merger that would create a global leader in the tanker shipping market. FRO will acquire all 201.7mn of issued and outstanding EURN shares with 292.4mn FRO shares (1.45 FRO shares for each share of EURN). As a result of the transaction, existing shareholders of EURN and FROwill own nearly 59% and 41% respectively of the merged entity, which will continue under the name Frontline. It is expected that EURN will pay total cash dividends of nearly USD 0.12 per share before the closing of the transaction, with no impact on the exchange ratio.
Transaction to create a giant in the tanker shipping market
EURN’s fleet comprises 46 VLCCs and 30 Suezmaxes, with an average age of 8.7 years. FRO owns a fleet of 23 VLCCS, 27 Suezmaxes and 20 LR2s with an average age of 5.8 years. The transaction will expand FRO’s fleet to 146 vessels, including 126 crude tankers (69 VLCCs and 57 Suezmaxes), and 20 product tankers (LR2) with an average age of 7.3 years. On completion, this transaction will create
the world’s largest tanker fleet with a carrying capacity of over 32.4 mdwt. The combined entity will have an enterprise value of ~USD 8,400mn (~98.5% more than FRO and 101.6% more than EURN).
Post-merger, FRO will control about 8.3% of the fleet in its vessel class and will be nearly four times larger in terms of the market cap than its US peer DHT Holdings. Following the acquisition, we estimate that the fair market value of FRO’s fleet will increase from USD 3,385.7mn to USD 6,943.8mn. EURN’s stock changed hands at USD 11.24 per share on 6 April. The offer from FRO valued EURN’s
stock at USD 13.70 per share, which represents a premium of 21.9% over EURN’s stock closing stock price. The share closed 6.8% higher at USD 12.00 per share on 7 April after touching a 52-week high of USD 12.53 per share, and is currently trading at USD 12.81 per share, 14% higher than the price prior to the merger announcement.
Euronav is a provider of maritime shipping and offshore services engaged primarily in the transportation and storage of crude oil. As of Apr. 4, 2017, Co. owned and operated a modern fleet of 55 vessels (including four chartered-in vessels) with an aggregate carrying capacity of approximately 13.7 million deadweight tons, or dwt, consisting of 31 very large crude carriers, one ultra large crude carrier, 21 Suezmax vessels, and two floating, storage and offloading vessels. Co. has two operating segments: the operation of crude oil tankers on the international markets (tankers) and the floating production, storage and offloading operations.
Drewry, since 1970, has been providing research and advisory services on the global Maritime and Shipping industries and has established itself as a firm with long history of credibility and expertise on various aspects of the maritime industry. Leveraging this in-depth market knowledge and understanding, we have extended our offering to deliver a unique, independent investment research service on globally listed companies operating in the maritime industry. Under the brand Drewry Maritime Equity Research and in accordance with the FCA, DMER led by Rahul Kapoor and his team, offers fundamental analysis on listed companies. DMER analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. By combining these market-leading resources with seasoned sector expertise and commercial awareness, we are able to offer a highly differentiated and comprehensive investment research service to prospective investors in listed maritime companies. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.
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