A striking transaction could be brewing as tanker carrier Frontline announced a bid on its competitor DHT Sunday evening.
The bid from Frontline, which is controlled by Norwegian billionaire John Fredriksen, was submitted in writing Friday and concerns all shares in DHT Holdings, writes DHT in a press release Sunday evening. Frontline confirms the offer in a separate statement.In total, Frontline proposes to pay with 0.725 of its own shares for each share in DHT. This corresponds to an aggregate price of approximately USD 475 million. Meanwhile, Frontline has already purchased 16 percent of the common stock in DHT, according to the statement.
The board of DHT, which like Frontline is based in Bermuda but with roots in Norway, will now consider the offer from its Norwegian competitor.
To avoid a hostile takeover, the company's management has furthermore adopted a shareholder rights plan which gives the right to issue new shares if Frontline or others increase their shareholdings.
"The plan is intended to give the Board and DHT time to properly consider the non-binding proposal and to prevent any bidder or shareholder from acquiring control of DHT in a manner which would be inconsistent with the best interests of DHT and its shareholders," DHT writes in the statement.
New tanker behemoth
If this deal becomes reality, it will give rise to a new Norwegian crude oil giant.
In a brief, the bank J.P. Morgan writes that the combined fleet will reach 73 VLCC vessels, including the venture VLCC Chartering, of which Frontline is a part. This is the equivalent of 10 percent of the aggregate global VLCC-fleet, writes the bank.
In general we would view fleet mergers and corporate M&A favorably"
Both CEOs and analysts have recently pointed out that 2017 may be a tough year for tanker carriers, which will take delivery of many vessels this year. Frontline's bid on DHT could thus prove to be the beginning of a consolidation wave, according to J.P. Morgan.
"In general we would view fleet mergers and corporate M&A favorably. While the business of tanker shipping is still one where getting and maintaining market power is difficult, if not impossible (...), we still perceive advantages on the capital markets side as merged companies could offer higher market capitalizations and higher trading volumes for institutional investors," writes the bank's analyst Noah R. Parquette.
The problems for the many tankers will be worsened by the the fact that oil exporting countries seem to be living up to their commitments to reduce oil production. Simply put, this means there will be less oil to transport.
Last week, the pessimistic prospects for the segment prompted analyst agency Drewry to lower its forecast across the board for crude oil tankers, now marking them "unattractive".
This description was given to Euronav, Nordic American Tankers, DHT, Teekay Tankers and Tsakos Energy Navigation.
Drewry also expects that the total tanker fleet will be expanded by around eight percent due to the orders already placed, and thus projects that tanker carriers will take a hit in earnings, not just this year, but next year as well.