Take a tanker fleet, mix in a high-stakes merger plan, a big personality or two, and season with founding-family pride. It’s a tried-and-true recipe for the kind of squabbling that gives tanker shipping its colorful reputation.
Today’s three-way squabble 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 squabbles.
There was a time in 2004 when EasyJet founder Stelios Haji-Iouannou 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 was eyeing General Maritime, the discussion at the Marine Money conference in New York became 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.
Then there was the time in 2008 when Frontline’s founder, shipping magnate John Fredriksen, was being presented with the ceremonial Connecticut Maritime Association “Commodore” hat by the previous year’s hat-wearer, OSG CEO Morten Arntzen, and Fredriksen was rumored to have quietly told Arntzen on the dais that he’d just purchased 10% of Arntzen’s company.
Euronav-Frontline-Saverys saga timeline
Over the last 20 years, Fredriksen has been involved in many of the tanker sector’s sagas, making repeated unsuccessful bids for other public companies such as OSG, General Maritime, DHT (NYSE: DHT), Gener8 Maritime, and now Euronav. (He also purchased a 17% stake in International Seaways, which acted as a poison pill.)
Euronav was purchased in 1997 by the Saverys-controlled Compagnie Maritime Belge (CMB). In 2020, the family reduced its Euronav stake to less than 5% and began focusing more on decarbonization and hydrogen power.
In 2021, Fredriksen began constructing his Euronav stake. The Saverys family increased its stake in Euronav to 10% in early 2022.
Euronav announced in April that it would merge with Frontline to form a $4 billion market-cap tanker conglomerate. The Saverys family was opposed to the deal, instead proposing that Euronav focus on green hydrogen and ammonia-powered ships and merge with the Saverys family’s CMB Tech.
Hugo De Stoop, CEO of Euronav, countered that a merger with CMB Tech, which he described as “a startup company… that does not make any money,” would be a “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 implied that we’re not loyal. That is not how business is conducted. We are no longer living in the feudal era of lord and vassal.”
Temporary impasse
The Saverys family eventually increased its stake in Euronav to 25%, enough to thwart the Frontline deal, with Alexander Saverys telling Tradewinds, “Let’s abandon this madness and sit around the table.”
On January 10, Frontline unilaterally terminated the merger agreement. Instead of selling his shares, Fredriksen increased his stake in Euronav to 24.99%, presumably enough to prevent any Euronav merger with CMB Tech, resulting in a temporary standoff with Euronav in the middle.
Euronav denied Frontline’s right to terminate the merger and filed an emergency arbitration proceeding. Meanwhile, CMB called for a special general meeting to vote on replacing the entire Euronav board with members nominated by CMB, which Euronav described as a “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 plummet — the creation of the largest publicly traded vehicle to allow stock buyers to invest in those fundamentals remains mired in “this madness.”
Euronav had left the altar.
During Thursday’s quarterly conference call, De Stoop elaborated on the situation. “While we regret the current situation, we will act professionally and work to find a solution,” he said.
“Obviously, there are three parties at the table, so our attitude will remain very constructive. We’re not the type to declare that we’re all enemies, so let’s go to war. Every problem, in my opinion, has a solution. I am confident that as long as all three parties maintain the same attitude, we will all come out on top. I’m not sure when. I’m not sure how. But I know you have to have that attitude first.”
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’ve seen many cases where a wedding is postponed and then rescheduled three months later.
“Perhaps there was a miscommunication. Perhaps there was something they weren’t prepared for. Let us once again identify the issue. Perhaps the solution is for us not to marry. Or maybe the solution is that we marry, but we change the location of the wedding. Perhaps we should change the orchestra.
“However, the idea that just because you don’t want to marry at a certain point in time, it’s forever and that the person you were in love with becomes an enemy is not part of our Euronav philosophy.”
‘I’m watching this saga like it’s Netflix.’
The results of the arbitration’s preliminary summary proceedings will be announced on Tuesday. This will not decide the merits of the case — whether Frontline had the right to terminate the merger — but rather which provisions of the agreement will remain in effect until the final decision.
When asked what is at stake in Tuesday’s arbitration decision, De Stoop asked for patience. “People are treating this saga as if it were Netflix. But sometimes you have to wait until the next episode is released before you can watch it.”
He also stated that Euronav will continue to focus on consolidation even if the Frontline deal fails.
“The market deserves and is capable of consolidation. The board, in collaboration with management, is developing a strategy to continue to grow and seek alternatives. If you can’t marry this lovely lady you met, find someone else and start a family.”
Best quarter since the second quarter of 2020
The irony of this fight is that Euronav is just getting started and has a promising future.
Euronav reported its highest earnings since the second quarter of 2020, when tankers were booming due to floating storage, on Thursday. In Q4 2022, it earned $234.7 million in net income, compared to a loss of $71.4 million in Q4 2021. Spot rates for Euronav’s very large crude carriers were $57,400 per day in Q4 2022, up 4.6 times from Q4 2021. Spot rates for its Suezmax crude tankers were $57,800 per day, which is 5.1 times higher.
“The Q1-to-date spot rates achieved by the fleet point to another strong quarter,” Evercore ISI analyst Jon Chappell says, “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 whether it stays on its own or merges with Frontline, but not if it follows CMB’s advice and becomes “an incubator for clean-fuel development.” He described it as a “heads you win, tails you win” situation, but if there is a “forced complete strategy shift, you lose.”
