Frontline, the listed VLCC and Suezmax operator in John Fredriksen’s business empire, and its spin-off Frontline 2012 have agreed to merge.
The merged company, Frontline, will remain listed in Oslo, London, and New York. Shares in Frontline 2012 are currently traded on the over-the-counter (OTC) market in Oslo. The revamped company is expected to issue about 584 million shares to Frontline 2012 shareholders as part of the merger.
“By merging Frontline and Frontline 2012 we will regain Frontline’s position as a leading tanker company,” said John Fredriksen, chairman of Frontline and Frontline 2012 said. “The combined company will have a large fleet and a strong balance sheet which puts us in a position to gain further market share through acquisitions and consolidation opportunities.
“With the current strong tanker market and attractive cash break-even rates, we believe the combined company will generate significant free cash. The intention is to pay out excess cash as dividends at the board’s discretion. I am very pleased with this merger and I am determined to develop and grow the company further,” Fredriksen said.
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The new company will have a fleet of about 90 vessels, consisting of 25 VLCCs, 17 Suezmax tankers, 16 MR product tankers, and 10 LR2 Aframax tankers. This includes about 20 vessels on time charter in or under commercial management. Frontline also plans a newbuilding programme of about 22 vessels, which are scheduled to be delivered in 2015-2017.
The merger has been widely anticipated as Frontline 2012 was established at the turn of 2011-12 as part of restructuring of the business of Frontline, which ran into financial difficulties in the aftermath of the 2008 financial crisis.
Initially, it was meant to become the growth vehicle of Fredriksen’s interests in dry bulk, LPG, and container ship ownership. However, these interests were later transferred to other companies, leaving both Frontline and Frontline 2012 as tanker companies.
However, Frontline 2012 soon issued a $190 million convertible bond to secure its financial solidity, with maturity due in April this year. Until the present upturn in tanker freight rates, Frontline 2012 was warning that it might not be able to redeem the bond without restructuring its business. This, shipping analysts said, would have delayed a merger of the two companies until the issue could be settled.
In effect, the recovery in tanker freight rates allowed Frontline 2012 to redeem the bond on time and the door was thus open to the merger of the two companies.