Posted on July 13, 2022
The Saverys family through its Belgian shipping company Compagnie Maritime Belge (CMB), which is the largest shareholder in Euronav, reiterated opposition to the proposed merger with Frontline to form the largest tanker operator. In a statement released a day after the companies announced terms for a voluntary stock exchange offer as the first step for their merger, the family continues to call into question the value creation of the merger along with the long-term strategy of the company.
“CMB does not support the proposed Frontline takeover bid of Euronav, making a simplified squeeze-out by Frontline impossible and a legal merger of Euronav into Frontline highly unlikely,” writes the company in repose to Frontline’s agreement with Euronav to proceed with an offer to exchange Frontline shares to gain a minimum of 50 percent of the company plus one share. Under the plan, after taking control of the majority of the stock, Frontline would move to “squeeze-out,” the other shareholders to complete the legal merger.
“The structure that will result from the takeover bid includes two separate competing companies, with separate listings and minority shareholders that compete for the same clients and the same corporate opportunities,” argues CMB in its written statement. “Each commercial or investment decision risks leading to conflicts of interest and governance issues,” they contend saying that unable to squeeze out shareholders the resulting structure will be very complex and risks creating negative value.
They also continue to call into question the rationale for the merger and the business strategy. Saying that CMB believes in the upcycle in the tanker market, they say that the tanker market will generate good returns for years to come while renewing their call to use the cash flow from oil transportation to reinvest in the diversification and decarbonization of Euronav’s fleet.
Both sides argue that they would create a company with greater strengths and with the right strategy and capabilities to address decarbonization. CMB in its competing proposal for Euronav calls for diversifying into other shipping assets and a focus on decarbonization. Frontline argues that the plan would see Euronav selling tankers before the full benefits of the coming upcycle in tanker shipping.
CMB also argues that the companies do not need to merge to create the benefits Frontline cites to realize better customer service and contribute to increasing prices in the market. Frontline said that the combination would lead to better utilization, opportunities such as combination voyages, and economies of scale in daily operations, dry-dock, and other expenses.
“CMB believes that Frontline/Euronav will continue to be price-takers in the commoditized and geopolitically sensitive crude oil transportation market,” they write. They also question the ability to realize “meaningful synergies,” on operations and expenses while Frontline and Euronav said they expect up to $60 million in annualized cost savings and benefits after the companies are fully combined.
The arguments from both sides will likely have time to continue as Frontline works to complete its reincorporation in Cyprus. They said in announcing plans for the voluntary stock exchange that it was likely to be the fourth quarter before the relocation could be achieved and the offer would commence.