Euronav files for arbitration over Frontline's merger exit

10-18 January

A high-profile merger deal between two of the tanker industry’s largest fleet owners is no longer in play, according to a letter published by tanker owner Frontline.

The letter, signed by Frontline’s board of directors, which is headed by billionaire shipowner John Fredriksen, said the company "no longer pursues a combination between Frontline and Euronav. Frontline has terminated the combination agreement it entered into in this respect", noting it had notified Euronav separately of its intent to exit the deal.

"Frontline will not make a voluntary conditional exchange offer for all outstanding Euronav shares. Frontline will also no longer seek a listing on Euronext Brussels," the company said.

In response to Frontline’s annoucement, Euronav initially confirmed that Frontline’s decision to terminate the proposed combination of the two fleets – announced in July 2022 – had been taken ’unilaterally’. Euronav confirmed receipt of a Frontline termination notice and said it "will examine such letter and reserves all rights and actions in this respect".

The following day, Euronav said it had determined, through discussion with ’legal and financial advisors’ that Frontline’s action to terminate the agreement ’has no basis under the terms of the combination agreement between the two companies signed 10 July 2022’.

"Frontline failed to provide a satisfactory reason for its decision to pursue termination. Euronav has complied with its obligations under the combination agreement and has done everything in its power to make this transaction a success. The Supervisory and Management Boards are in the process of analysing the Company’s options and will take appropriate action to protect and preserve the rights and interests of Euronav and its stakeholders, including but not limited to potential litigation and/or arbitration," Euronav said.

Euronav’s largest shareholder is Compagnie Maritime Belge (CMB), controlled by the Saverys family who have regularly voiced their opposition to the merger. The Saverys have acquired hundreds of millions of dollars worth of Euronav shares to reach a 25% stake in the company that would allow for blockage of a simple merger. CMB has released a statement saying it believes the termination of the merger plan by Frontline "warrants a discussion with the Supervisory Board of Euronav about the future strategy of the company and a change in the composition of the Supervisory Board". CMB said it "intends to constructively engage in a dialogue with the Supervisory Board to discuss these topics".

Both Euronav and Frontline have cited improved financial positions over the course of 2022 in their public comments on the collapsed merger, as tanker markets improved over the year. Euronav said it foresees an extended period of strong markets and that its company is in good shape for the future.

"Regardless of the combination taking place, the supportive and sustainable fundamental factors of the tanker markets have started to deliver (during Q3 and Q4 2022) what Euronav and most sector commentators believe will be a prolonged upcycle," Euronav said.

Frontline chief executive Lars Barstad said the company will continue to "capture value" and maximise dividends for shareholders.

“We regret that we could not complete the merger as envisaged in July 2022, as that would have created by far the largest publicly listed tanker company. At the same time, both companies have independently very large fleets of crude oil and product tankers, and are already enjoying economies of scale as evidenced by our respective recent financial reports," he said.

A John Fredriksen share sale in Euronav holdings in mid-December provoked speculation as to whether the billionaire would walk away from the deal as the high-profile battle for control of Euronav between the Saverys, Fredriksen entities and the majority of Euronav’s shareholders wore on. No reason for the CK Ltd share sale was given at the time. The Saverys picked up outstanding shares in December, pushing its stake in Euronav past the 25% threshold that would allow the family to block a simple merger.

In its Q3 earnings call on 8 December, Frontline said it intended to carry on with the process of moving its headquarters and operations from Bermuda to redomicile the company in Cyprus as a precursor to the proposed merger. The company also called a meeting of shareholders to vote on the move. 

During the Q3 earnings call, Mr Barstad said, “The process of moving Frontline to Cyprus from Bermuda has proven complicated. There are lots of regulatory bodies involved and they use time. But we continue to be committed to this process. However, the launch of the tender offer has slipped to Q1 [2023]. The outcome remains the same. Depending on how much support we get in the tender offer, if we get above 75%, we will have a merger or move for a merger. If we are between 50.1% and 75%, we will form a group.”

The share exchange offer, as originally announced, would be 1.45 Frontline shares for every Euronav share.

Frontline and Euronav have been pushing for a merger since April, and the Fredriksen group increased its stake in June before its December share sale.

Sign up for Riviera’s series of technical and operational webinars and conferences in 2023:

• Register to attend by visiting our events page.
• Watch recordings from all of our webinars in the webinar library.