Industry reacts to announcement of Frontline/Euronav merger

Shipping analysts gave their thumbs up to yesterday’s big hit news about tanker merger between Euronav and John Fredriksen’s Frontline, while warning that the sector will remain highly fragmented. The two European giants plan to combine their fleets in an all-share deal to create the continent’s largest tanker company in which Fredriksen will have a 22% stake once the deal is approved. The $4.2 billion entity would be called Frontline and would be led by Euronav CEO Hugo De Stoop.

In an update to clients yesterday, analysts at Evercore ISI said the merger would create an “oversized oil behemoth” in an industry where most companies’ market capitalizations are below $1 billion.

“The potential combination would create a truly investable tanker company with a significant and liquid market capitalization, which would also become an indicator not only for tanker stocks, but also for shipping as a whole due to its increased size,” said suggested Evercore ISI.

The potential combination could become a bellwether not only for tanker stocks, but also for shipping as a whole due to its increased scale.

The combined company would become the largest owner operator of crude tanker tonnage, with a combined fleet of 69 VLCCs and 57 suezmax vessels and 20 LR2/aframax vessels. For perspective, DHT, which would be the second largest tanker company after the merger, has a total of 26 VLCCs.

Mark Williams, founder of UK consultancy Shipping Strategy, said Splash“Regulatory and financial pressures, along with the prospect that we will peak oil demand during the lifetime of vessels built since 2015, mean that consolidation is likely inevitable in tanker markets. Moving now when tanker rates are very submarine indicates that Frontline believes the crude oil freight market needs to recover.

BIMCO’s chief shipping analyst Niels Rasmussen has pointed out that the tanker market will remain highly fragmented even after such a merger with data from Banchero Costa yesterday suggesting that the combined Frontline/Euronav entity would control around 10% of global VLCC and suezmax fleets.

Commenting on the news of the mega merger via LinkedIn, Roar Adland, professor of maritime transport at the Norwegian School of Economics, said the higher market capitalization would give the merged company better conditions both in the equity markets and debt.

The Euronav brand, which is likely to disappear once the deal is done, has been around since 1989 and came under the control of the Saverys family in 1997. many years, with the first talk of it reportedly 23 years ago.

For Fredriksen, 77, Norway’s richest man, the Euronav deal shows he still has an appetite for big business, having built a career on the back of bold takeovers. It also signals that the worst is over since the restructuring of Seadrill, his drilling contractor which has taken up much of his time in recent years.

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