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The Belgian shipping company Euronav is merging with its Norwegian competitor Frontline. Together they form the largest oil tanker shipping company in the world. Hugo De Stoop, the CEO of Euronav, will lead the merged company.
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The combination of Euronav and Frontline – the shipping company of the Norwegian shipping tycoon John Fredriksen – creates the largest oil tanker shipping company in the world with a company value of more than 4.2 billion dollars. The combined fleet consists of 69 large oil tankers (VLCCs or giant oil tankers of 200,000 to 320,000 tons carrying up to 2 million barrels), 57 Suexmax (120,000 to 200,000 tons) and 20 smaller Aframax vessels.
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Euronav and Frontline have been rivals for generations. Both shipping companies have been transporting crude oil and petroleum products worldwide for decades with large and smaller oil tankers. They do this on behalf of oil traders such as Trafigura, Glencore or Vital or oil companies if they have a shortage of ships and rent tankers from independent shipping companies.
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The merger will be entirely through shares. Euronav’s shareholders will own approximately 59 percent of the new company. They will receive 1.45 Frontline shares per share. The merger will value Euronav at $13.7 or €12.5 per share. That is an 18 percent premium to Wednesday’s closing price.
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We are the biggest, but still small.
Hugo De Stoop
CEO Euronav and future CEO of the merger group
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The Euronav name will disappear and the merged group will operate under the Frontline banner. Euronav CEO Hugo De Stoop will lead the newly merged company.
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Rumors
The deal has not come out of the blue. The Norwegian oil magnate John Fredriksen in October last year, through its privately controlled vehicle CK Limited, offered $200 million for a 9.8 percent stake in Euronav. He has since gradually increased that to 40 percent now. The main shareholder of Frontline, one of Euronav’s biggest competitors, also became the largest shareholder of the Belgian shipping company, which was founded in 1995 by the Saverys family.
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At the time, the deal sparked rumors of a possible merger of the two largest players in the market. For the time being, it is only an investment, De Stoop said in an interview with this newspaper at the end of last year. He immediately added that he was always ready to discuss a possible merger with another player. “Fredriksen can call me, he has my number.”
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Frontline and Euronav have been in talks to merge in the past. Without success. So this time it worked. Both shipping companies know each other very well. Not only are they competitors, but they also work together in a charter pool. Both are very active in the spot market – renting out oil tankers at the price of the day, as opposed to long-term contracts – and provide similar services. Together, Frontline and Euronav account for an estimated 8 to 10 percent of the world oil tanker market.
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The cultural difference between the two is huge. Frontline is very small, it has about 30 employees, and outsources a lot to third parties. Euronav is strongly vertically integrated with its own ship management, invests heavily in research and development, has 220 employees on shore and 3,500 seafarers on their ships. De Stoop will have to reconcile the two corporate cultures. ‘It will work’, he says, ‘culture comes from the top. We stay at the helm and we bring in our culture. The people of Frontline will be happy’.
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‘Size matters’
According to De Stoop, the transaction could represent an important development for the tanker industry. “She will create a leading shipping company that is better able to meet the needs of our customers and she will help us with the energy transition of the fleet and the switch to green fuel. Upscaling is better to invest in it. Size matters. Our customers are getting bigger, we have to get bigger too’.
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The 78-year-old Fredriksen has been thinking about his ‘legacy’ for a while, can be heard in the sector. For him, his strategy at Frontline has always worked well. The oil tanker business is his passion and he decides everything at the Norwegian shipping company. But neither of his two daughters is active in shipping. There was a risk that his model would collapse if he is no longer active there. With the deal, he is once again in the front seat of something much bigger.
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The merger will make the new Frontline by far the largest oil tanker shipping company in the world. †But we stay small‘ says De Stoop. ‘We have a share of eight percent in the large tanker segment. That remains little. In the future we will try to become even bigger.’
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De Stoop sees the rental rates for oil tankers on the spot market rising again. It has everything to do with the war in Ukraine. Many oil giants no longer want to transport Russian oil and some Russian oil is now making its way to China and India. This requires longer sailing routes and more larger ships. This causes the rental rates for ships to rise. China and India have already indicated that they will not impose sanctions on oil imports from Russia. Europe has not yet done so, but there is a chance that they will in due course.
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CMB
In recent months, the shipping company CMB built up an interest of 13.22 percent in Euronav and was suddenly the largest again. shareholder of Euronav† Everyone wondered why the Saverys family invested again. CMB also indicated that it aspired to a seat on Euronav’s board of directors in order to play a more active role in Euronav’s strategic decisions and maximize the company’s shareholder value.
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The Saverys family’s comeback has benefited investors in Euronav. Since it was announced in mid-February that CMB again had an interest in Euronav, the share has appreciated by a fifth.
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After the super year 2020 – 1.2 billion dollars in turnover, 473 million dollars in profit – Euronav has had a bad 2021. Turnover plummeted to $420 million and a loss of 338 million was recorded. The poor results are a result of the Covid pandemic, lower demand for oil, an oversupply of tankers, the release of ships used for oil storage in the super year 2020 and the production restrictions of the oil-producing countries. This led to super low freight rates and therefore much less income.
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