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Tanker shipping consolidation saga watched ‘like it’s Netflix’

Take a fleet of tankers, add a high-stakes merger plan, mix in a big personality or two and season with founding-family pride. It’s a time-honored recipe for the kind of messy business disputes that give tanker shipping its colorful reputation.

Today’s three-way fracas involving tanker owner Euronav (NYSE: EURN) — with Frontline (NYSE: FRO) on one side, Belgium’s Saverys family on the other and Euronav’s management and board in the middle — is just the latest in a long line of tanker confrontations that have spanned decades.

There was the time in 2004 when EasyJet founder Stelios Haji-Iouannou, no longer active in management of the tanker company that bore his name, Stelmar Shipping, reemerged (his family still owned 27%) and fought off his board’s move to sell the fleet, holding a press conference in a room filled with inflatable Garfield dolls and posters reading: “To Stelmar Shareholders: Oust the Fat Cats, signed Stelios.”

A year later, as Frontline eyed General Maritime, the talk at the Marine Money conference in New York, usually molasses-thick on data points and paper-thin on drama, got so heated that Jeff Pribor, then CFO of General Maritime — now CFO of International Seaways (INSW) — jokingly wore a pair of boxing gloves to a panel.

And then there was the time in 2008 when Frontline’s founder, shipping magnate John Fredriksen, was being awarded the ceremonial Connecticut Maritime Association “Commodore” hat by the prior year’s hat-wearer, OSG CEO Morten Arntzen, and Fredriksen was rumored to have quietly told Arntzen on the dais that he’d just bought 10% of Arntzen’s company.

Timeline of Euronav-Frontline-Saverys saga
Fredriksen has been involved in many of the tanker sector’s sagas over the past 20 years, making repeated unsuccessful moves on over other public companies, including OSG, General Maritime, DHT (NYSE: DHT), Gener8 Maritime and now Euronav. (In addition, he has bought a 17% stake in International Seaways, which enacted a poison pill.)

Euronav was acquired by Saverys-controlled Compagnie Maritime Belge (CMB) in 1997. The family cut its Euronav stake to less than 5% in 2020 and began focusing more on decarbonization and the use of hydrogen power.

Fredriksen began building his Euronav stake in 2021. In early 2022, the Saverys family upped its stake in Euronav back to 10%.

Last April, Euronav announced a plan to combine with Frontline and create a $4 billion-market-cap tanker giant. The Saverys family opposed the deal, proposing instead that Euronav focus more on green hydrogen and ammonia-powered ships, and merge with the Saverys family’s CMB Tech.

Euronav CEO Hugo De Stoop countered that a merger with CMB Tech, which he called “a startup company … that does not make any money,” would be “an impossible marriage.”

Responding to comments of Alexander Saverys that implied De Stoop was disloyal because he was hired by Marc Saverys, Alexander’s father, De Stoop said, “We’re talking about someone who sold all his shares and got off the board. And [it’s] suggested we’re not loyal. That’s not how business works. We are no longer in the feudal era with a lord and his vassal.”

Temporary stalemate
The Saverys family ultimately increased its stake to 25% of Euronav, enough to block the deal with Frontline, with Alexander Saverys telling Tradewinds: “Let’s abandon this madness and sit around the table.”

Frontline unilaterally terminated the combination agreement on Jan. 10. But instead of selling off his shares, Fredriksen increased his stake in Euronav to 24.99%, presumably enough to block any Euronav combination with CMB Tech, creating a temporary stalemate with Euronav in the middle.

Euronav rejected Frontline’s right to terminate the combination and initiated emergency arbitration proceedings. Meanwhile, CMB called for a special general meeting to vote on the removal of the entire Euronav board and its replacement with members nominated by CMB, which Euronav called “an unprecedented request by a minority shareholder.”

Thus, at a time when the tanker industry’s supply side fundamentals have never been better — newbuild deliveries are about to fall off a cliff — the creation of the largest publicly listed vehicle to allow stock buyers to invest in those fundamentals remains entangled in “this madness.”

Euronav left at the altar
De Stoop spoke at length on the mess during Thursday’s quarterly conference call. “While we regret the current situation, we will continue to act professionally and work to a solution,” he said.

“Obviously there are three parties around the table so our attitude is to continue to be very constructive. We’re not the type of people who say we are all enemies so let’s go to war. I think every problem has a solution. As long as the three parties have the same attitude, I am sure we will all find a positive outcome. When, I don’t know. How, I don’t know. But I know you first need to have that attitude.”

Asked how Euronav could go forward with Frontline after Frontline left Euronav at the altar, he replied, “If the person you want to marry suddenly doesn’t want to marry you, does that mean you should dislike or even profoundly dislike this person? I have seen many occasions where a wedding is canceled and three months later they get married.

“Maybe there was a misunderstanding. Maybe there was something they were not ready for. Again, let’s identify the problem. Maybe the solution is that we don’t marry. Or maybe the solution is we do marry, but maybe we change the place of the wedding. Maybe we change the orchestra.

“But this idea that because you don’t want to marry at a certain point of time that it’s forever and that this person you were in love with becomes an enemy is not part of our philosophy at Euronav.”

‘Looking at this saga like it’s Netflix’
The results of the initial summary proceedings of the arbitration will be announced Tuesday. This will not decide the merits of the case — whether Frontline had the right to terminate the combination — but what clauses of the agreement will stay in place, or not, until that final decision.

De Stoop asked for patience when pressed on what’s at stake in Tuesday’s arbitration decision. “People are looking at this saga like it’s Netflix. But sometimes, you need to wait until the next episode is produced to be able to watch it.”

He also confirmed that Euronav will continue to focus on consolidation even if the Frontline deal doesn’t go forward.

“The market deserves to be consolidated and can be consolidated. The board together with management is setting the strategy together, which is to continue to grow and find alternatives. If you cannot marry this beautiful lady you met, then find someone else and make a happy family.”

Best quarter since Q2 2020
The irony of this fight happening now is that Euronav is just hitting its stride and its outlook is positive.

On Thursday, Euronav reported its highest earnings since the second quarter of 2020, a time when tankers were booming due to floating storage. It posted $234.7 million in net income for Q4 2022 versus a loss of $71.4 million in Q4 2021. Spot rates for Euronav’s very large crude carriers came in at $57,400 per day in Q4 2022, 4.6 times higher than in Q4 2021. Spot rates for its Suezmax crude tankers came in is $57,800 per day, 5.1 times higher.

According to Evercore ISI analyst Jon Chappell, “The Q1-to-date spot rates achieved by the fleet point to another strong quarter, which, based on our views of supply and demand for the sector over the next few years, confirms the early stages of a likely extended period of robust earnings and cash-flow generation.”

Chappell sees a positive outcome for Euronav regardless of whether it stays on its own or combines with Frontline, but not if it goes the path espoused by CMB as “an incubator for clean-fuel development.” He called it a case of “heads you win, tails you win” but if there’s a “forced complete strategy shift, you lose.”
Source: Freight Waves by Greg Miller, https://www.freightwaves.com/news/tanker-shipping-consolidation-saga-watched-like-its-netflix

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