Frontline pulls plug on intended merger with Euronav (update)

The intended merger between the Norwegian oil tanker shipping company under Cypriot flag, Frontline, and the Belgian sector peer Euronav is definitely off. Frontline pulls the plug, and the company does not give an official reason for abandoning.

In reaction to the news that came like a bolt from the blue, Euronav management says that “Frontline‘s unilateral action to obtain the termination of the merger agreement has no basis under the terms of the merger agreement between the two companies, signed on July 10, 2022, and Frontline fails to provide a satisfactory reason for its decision to obtain a termination.“

“The Supervisory and Management Boards are in the process of analyzing 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 adds in a press release.

Radically different course

Last year, when the merger plans were announced, it became clear that the Saverys family, which founded Euronav and still is one of its shareholders through Companie Maritime Belge (CMB), opposed the merger. As forerunners in hydrogen technology with CMB, they preferred a radically different course toward sustainable energy for the tanker fleet.

The Belgian family then raised its stake in Euronav with a 620 million dollar investment to just under 23% of shares and 25% of voting rights to block the merger. They fiercely questioned whether focusing entirely on oil transport in the future was a good idea.

Frontline pulls the plug

John Fredriksen (78), who built up Norwegian Frontline from the ground up and now owns 40% of it, was in favor of the merger with the new company supposed to operate under the Frontline brand name.

The merger was supposed to lead to a global leader in the oil tanker industry. The new fleet would consist of 115 tankers, 69 Very Large Crude Carriers (VLCCs), 57 Suezmax tankers, and 20 smaller Aframax ships. But in a press release, Frontline now says it is pulling the plug itself.

The company will not make an exchange offer for Euronav’s shares, nor will it seek a listing in Brussels. “We regret not being able to complete the merger as planned in July 2022,” says Frontline CEO Lars H. Barstad. The cancellation of the merger saw Euronav’s shares take a 17,7% hit on Tuesday.

Reshuffle of Euronav board of directors

In a reaction, Euronav notes the decision and says it reserves “all rights and actions”. Either way, the tanker shipping company and hydrogen pioneer says it is well positioned for the future, and this is “regardless of the combination”. It points to the strong and sustainable fundamentals of the tanker market, Euronav’s strong balance sheet, and its own operating system.

However, the Saverys family is requesting a reshuffle of the Euronav board of directors. Through shipping company CMB and investment vehicle Saverco, the family owning 25% of shares is the largest shareholder in the Belgian company.

“A merger of Euronav would, therefore, have always needed CMB’s support,” the shipping company stressed in a comment. CMB also reiterates its view that a merger “would have led to an unworkable and value-destroying situation for both companies”.

Second attempt

The Saverys family is thus pushing for a change of course toward greening at Euronav. Now CMB is calling for “a discussion with Euronav’s board of directors on the future strategy” of the oil tanker shipping company.

Moreover, scrapping the deal with Frontline “necessitates a change on the composition of the board of directors”, it said. In doing so, CMB says it wants to engage in ‘a constructive’ dialogue.

During Euronav’s general meeting in May, the Antwerp-based Saverys family had already tried to appoint three independent directors to the five-member board of directors (Ludovic Saverys, Patrick De Brabandere, and Bjarte Boe), but it fell flat at the time. None of the three got a mandate. To appoint them, it requires 50% plus one vote.

The fact that Frontline has a 6,7 stake in Euronav, and Frontline’s controlling shareholder Frederiksen a 16,3% stake, is likely to create an uneasy negotiation.

Next move?

According to some maritime experts, the flamboyant Norwegian shipping tycoon does not make a habit of losing money, and speculations are rising if he’s going to take steps regarding increased participation in International Seaways, a US operator, in which he has been building up his stake to 16%.

It will also to be seen what happens to Euronav’s CEO, Hugo De Stoop, who used to be a Saverys-family pupil. He showed to be an ardent supporter of the merger and believed the Saverys’ greening plans to be too far-reaching.