The recent announcement from Euronav NV (EURN) and Frontline PLC (FRO) following the speculations last week regarding a potential deal indicates that two key shareholders of EURN – Compagnie Maritime Belge (CMB) and FRO are in the advanced stages of negotiations to end the bitter takeover fight to control EURN. In April 2022, FRO made an offer to acquire all 201.7mn of issued and outstanding EURN shares with 292.4mn FRO shares (1.45 FRO shares for each share of EURN). However, CMB indicated its reservations about the proposed deal and increased its stake in EURN in the following months to prevent EURN’s acquisition. In January 2023, FRO backed out and announced the termination of the combination agreement with EURN.
The tussle between the two key shareholders of EURN has impacted the company’s stock price performance compared to its peers over past nine months, which is clearly reflected in the fact that EURN’s stock price has consistently underperformed Drewry Crude Tanker Equity Index over the past nine months.
Both companies confirmed the proposed transaction to resolve the strategic and structural deadlock in Euronav. The agreement under discussion to resolve the ongoing tussle in EURN’s Board comprises of following key elements.
CMB will acquire FRO’s 26.12% stake (nearly 52.8mn shares) in EURN for USD 18.43 per share (~USD 972.1mn aggregate) followed by a mandatory public offering at the same price.
FRO will acquire modern fleet of 24 VLCCs from EURN’s fleet for a total consideration of USD 2.35bn, provided the completion of the share purchase by CMB and approval by EURN’s shareholders voting at a Special General Meeting and compliance to relevant prerequisites under Belgian Law.
EURN’s pending arbitration action against FRO and its affiliates will be terminated provided the completion of the share purchase by CMB.
The agreed price is at nearly 25% premium to the previous day’s (4 October 2023) close but lower than the consensus fair value estimate of USD 22.60 per share, indicating a good deal for CMB. EURN’s stock prices jumped 17.1% to USD 17.29 per share on this news. The company’s stock price has been on slide over past one week from the 28 September close of USD 17.48 per share. EURN’s share dropped nearly 15.5% between 28 September and 4 October and the volatility has led to a suspension of the share’s trading in Brussels. However, yesterday’s surge in stock prices has largely reversed the losses recorded by the company’s stock following the market rumours of the proposed transaction.
What is the implied vessel price?
FRO intends to finance the acquisition of these vessels through the combination of cash realised from the sale of its current stake in EURN and new long-term borrowings. While the press release does not specify the exact age of these vessels that FRO will acquire. A total consideration of USD 2.35bn for 24 vessels comes to USD 98mn per vessel. To give a context, a five-year-old VLCC is priced at around USD 98mn at present. The average age of the EURN’s VLCC fleet is 7.7 years.
VLCC asset prices have been largely stable over the past eight months after a rally between February 2022 and February 2023. In fact, second-hand prices slid marginally in recent months amid concerns of short-term macroeconomic headwinds; however, we do not expect further decline in asset prices.
What is there for the key stakeholders?
We believe the transaction is a win-win situation for all key stakeholders. The completion of the proposed transaction will end the strategic and structural deadlock in EURN. Frontline will get control of 24 on-the-water VLCCs at a time when the crude tanker market is expected to enjoy the phase of healthy day rates amid favourable supply-demand dynamics. The expanded fleet will enhance FRO’s market share and will boost its topline and profitability over the next three years. On the other hand, CMB will have nearly own nearly 49% of EURN way ahead the next shareholder at ~2.5%, which will provide it the flexibility to chart out the future strategic path for EURN as CMB aims to shift EURN’s business to clean energy. CMB believes that EURN should continue as a stand-alone tanker- owning company in the short term, while it should focus on diversification and decarbonisation in the long run.
We believe the proposed transaction will benefit EURN as it will pave the way for more effective control to the Saverys family and end the current deadlock, and hence, positive for EURN in the long run.
Source: Drewry