Euronav-Frontline merger could reap multiple benefits of energy transition

Norwegian tanker owner and operator Frontline and its Belgium-based counterpart Euronav have decided to pursue a merger, creating a global leader in the oil tanker industry.

Euronav
Illustration. Cap Philippe. Courtesy of Euronav

If the combination materializes, the combined group would continue under the name Frontline and would continue to operate from Belgium, Norway, UK, Singapore, Greece and the US.

In view of rapid technological changes, including digitalization and new low carbon fuels adoption, the combined group would be able to mobilise more resources and achieve meaningful scale to meet these challenges and opportunities from the energy transition, the duo said.

“This transaction would mark an exciting development for the tanker industry, creating a leading tanker company which would be positioned to serve the needs of customers, support partners and drive technology and sustainability initiatives to lead the energy transition,” Hugo De Stoop, CEO of Euronav said.

The combined business entity wants to be among the leaders in sustainable shipping, aiming for the highest environmental, social, and governance (ESG) standards in the industry.

Fleet decarbonization journey of Euronav and Frontline

Over the past few years, both companies have been exploring different options that would help them decarbonize their fleets.

In 2021, Frontline appointed classification society DNV to assist the company through its decarbonization journey towards IMO 2030- 2050.

Last May, Frontline also inked a resale deal to buy six latest generation eco-type VLCC newbuildings.

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The vessels are designed to operate on different fuels, including biofuel, and have the potential to be converted or retrofitted to consume fuel such as LNG or ammonia. The newbuildings will also be fitted with scrubbers.

The company also bought two scrubber-fitted, eco VLCCs in June 2021.

Euronav, on the other hand, ordered two VLCCs in South Korea that will be LNG-ready and possibly ammonia-ready. In a resale deal, it also bought Suezmax newbuilds that will have both LNG and ammonia-ready notations.

What is more, Euronav launched last year a joint development project with Hyundai Heavy Industries, Lloyd’s Register and DNV for the development of ammonia-fitted tankers.

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The company was also conducting biofuel trials that lead to the conclusion that biofuel has an important role to play in the decarbonization of shipping.

Moreover, as a founding partner of the Poseidon Principles, which leads bank financing of the global shipping industry, Euronav says it is on track to reduce its CO2 emissions by 40% by 2030.

The Belgian company is also a founding partner of the Getting to Zero Coalition that serves as a vehicle to accelerate the energy transition in shipping to find a way to put a commercially viable net-zero emissions ship to sea by 2030.

Business combination

As informed on 7 April, Euronav and Frontline signed a term sheet that has been unanimously approved by the independent members of Frontline’s Board of Directors and by Euronav’s Supervisory Board, on a potential stock-for-stock combination between the two companies, based on an exchange ratio of 1.45 FRO shares for every EURN share resulting in Euronav and Frontline shareholders owning approximately 59% and 41%, respectively, of the combined group.

Frontline’s largest shareholder Hemen, and related companies owning shares in Euronav, have committed to support the potential transaction.

Specifically, the combination would create a global independent oil tanker operator, with:

  • A market capitalization of more than $4.2 billion
  • Global tanker market participation with 69 VLCC and 57 Suezmax vessels, and 20 LR2/Aframax vessels
  • A strong balance sheet and access to attractive financing, supporting operational break-even levels for the combined fleet
  • Combined expertise in the shipping industry
  • Significant benefits arising from a larger combined fleet leading to, among other benefits, improved overall utilization and cost synergies
  • Significant synergies related to SG&A and other savings expected to be extracted from the combined entity.

A combination remains subject to regulatory approvals and other conditions.

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