Hans Theren Nielsen does not agree that the merger of crude oil shipping giant John Frederiksen is ruinous, but he predicts a scenario in which the deal could collapse anyway. – Frontline has been good at taking care of shareholders’ money.
Last fall, there were rumors that Frederiksen and his carrier, Front Line, wanted to swallow up the competitor Euronav, and in the spring of this year a merger was announced that would create the world’s largest carrier.
However, the launch of the show was delayed in line with growing opposition from Euronav’s largest shareholder, the Belgian Saverys family.
Many analysts and market participants now believe that the turnover in the merger is no longer good for Frederiksen and Frontline.
Frontline discontent changed somewhat over the fall, measured in dollars per vessel, says Storebrand asset management director Hans Thrane Nielsen, a Frontline shareholder through a fund.
– The front-line debt ratio was higher, which in the fall and winter led to a greater increase in the value of the shares of Front Line compared to Euronav companies. Plus, Frontline has made more money in recent months, he explains.
“The stock market therefore looks less attractive to Frontline shareholders now,” adds Nielsen.
The Saverys on Fredriksen’s Rebellion: – A lawsuit cannot be ruled out
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The terms of the proposed merger are, among other things, that Euronav shareholders receive 1.45 Frontline shares for each Euronav share.
However, as it stands today, the swap ratio will be around 1 frontline share for every Euronav share, according to Pareto Securities’ chief analysis officer Erik Havaldsen.
It highlights in an update that while Frontline’s value-adjusted equity (NAV) has risen about 90 percent in the period since the merger was announced earlier this year, that of Euronav has risen about 30 percent.
At the same time, Euronav’s share is up 57 percent, while Frontline’s share is up 32 percent, notes Havaldsen.
– If the agreement needs to be rewritten, then such an event is likely to lead to a clear decrease in Euronav’s share and a clear increase in Frontline’s share, and we believe Sloane Square (Fredriksen’s system, editor’s note) is fully aware of this, Havaldsen writes.
Euronav drops Saverys family claim
The Saverys family acquired a large enough stake in Euronav to stop a full merger. They also demanded an end to the alternative solution for shipping companies, in which Euronav would become a subsidiary of Frontline.
– We do not agree with the Saverys family’s statement that the transaction is “unviable” and “destructive,” asserts Nielsen at Storebrand Asset Management.
Among other things, the shipping family notes that an alternative solution would mean that Euronav would be a separate company listed on the New York Stock Exchange and the Brussels Stock Exchange. They believe this will lead to significant inefficiencies, such as competition for the same customers and the same business opportunities.
– We will continue to oppose the share offer with everything we can, including buying more shares, Alexander Savrez, head of the family business CMB, wrote in an email to E24 last week.
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– Good at taking care of shareholders’ money
However, Nielsen at Storebrand Asset Management doesn’t rule out another scenario where the agreement falls apart.
“Frontline has made good profits on Euronav shares, which probably makes it easier for the board of directors to end any dialogue with Euronav,” the director comments.
He also emphasized that “Frontline’s board and management have extensive experience in structured dealings.”
The common denominator of these actions is that Front Line has been good at taking care of shareholders’ money. The company stood on the barricades when it thought it was profitable and right.
In contrast, Frontline has largely refrained from conducting transactions when the potential exchange ratio is unfavorable to shareholders or is assumed to be dilutive. There’s nothing in Frontline’s stock pricing today to suggest the market thinks otherwise, the stock is trading close to NAV per share.
Haavaldsen of Pareto Securities believes, because of the change in the swap ratio, that “it is positive for Frontline if the two parties agree to go their separate ways.”
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