Frontline seeks Marshall Islands intervention in DHT merger spat

Apr 28 2017

In the latest twist to the Frontline Ltd/DHT merger saga, Frontline Ltd has abandoned its complaint against DHT filed in the Supreme Court of the State of New York on 18th April, 2017 in favour of a suit in the High Court of the Marshall Islands.

The latest move this week asked the Marshall Islands court to issue a temporary restraining order preventing BW from acquiring shares in excess of the 33.5% it will own, following the completion of DHT's acquisition of BW Group's VLCC fleet.

In rejecting Frontline's earlier request for a temporary restraining order blocking the acquisitions, on 19th April, 2017, the New York court ruled that the timing of Frontline's request was "inexcusable", in light of the fact that Frontline "had 18 days prior to 18th April to properly serve defendants and to attempt to marshal a case supporting jurisdiction over the defendants."

The court also said that Frontline had "failed at this stage of the case to establish a probability of success on" its claims that the transaction between DHT and BW Group violated applicable law, DHT said in a statement on Thursday.

On 25th April, Frontline approached DHT to consider a new business combination, which includes the ships already delivered and yet to be delivered by BW Group to DHT under the Vessel Acquisition Agreement (VAA) entered into by DHT and BW on 23rd March, 2017. The offer would be effected at an exchange ratio of 0.8 Frontline shares for each DHT common share.

Frontline said that its new proposal for a takeover, which represented a 18% premium to DHT's volume weighted average price for the 10 days immediately prior to the opening market price on 21st April, 2017, and 15.8% premium to the latest 30-day volume weighted average price, is expected to yield increased benefits.

In particular, it is expected that the combination of the two companies would create the largest public tanker company by fleet size, market capitalisation and trading liquidity; DHT shareholders would benefit from a substantially lower G&A cost per vessel and profit from synergy values. Frontline's superior access to debt and equity capital markets should enhance free cash flow generation further, the company said.

This latest move was also rejected by DHT.

As a result of the latest rejection, Frontline filed a complaint in the Marshall Islands on 26th April (where DHT is incorporated) to immediately enjoin portions of the unfair transaction documents into which DHT has entered that would permit BW Group to establish 45% ownership of DHT (even as other shareholders cannot exceed 10%). 

Frontline has also sought an injunction as to the alleged poison pill and other related anti-takeover defences DHT has erected. 

“We continue to urge the Board of DHT to negotiate in good faith with Frontline over its proposed offer, and not to contravene their duties to DHT's shareholders. In doing so, we are exercising our rights as shareholders in DHT. We will continue to explore all courses of action available to us in order to ensure that all shareholders of DHT receive equitable treatment,” Frontline said in a statement.

Talking of the new proposal, Robert Hvide Macleod, Frontline Management CEO, said: "We are convinced that the proposed new combination of Frontline and DHT will maximise value for both sets of shareholders. We believe that this outcome is in the best interests of shareholders of both companies and will seek to ensure that shareholders of DHT have an opportunity to consider our offer. We look forward to engaging DHT management and its Board to achieve a mutually beneficial combination with Frontline."

"Consistent with its fiduciary duties, DHT's Board will evaluate the proposal from Frontline," said Erik Lind, DHT Board chairman upon receiving the new offer. "While the proposed exchange ratio of 0.8 reflects no improvement from the proposal our Board previously considered and unanimously rejected, our Board will carefully and thoroughly review the offer, taking into account the changes to DHT's fleet, market conditions and other developments that have occurred over the past two months.  

“I note that, as has been the case with their previous proposals, Frontline is requesting a reply in an unreasonably accelerated timeframe - in this case, less than 24 hours - which does not permit for an appropriate and diligent review by our Board. We will respond in due course," he concluded.

Lazard is serving as financial advisors to DHT and Cravath, Swaine & Moore is acting as legal counsel.

This week, DHT also said that it had taken delivery of the ‘DHT Opal’ (ex ‘BW Opal’) and ‘DHT Raven’ (ex ‘BW Lion’), the second and third VLCCs acquired from BW Group.

The remaining six vessels are expected to be delivered during the second quarter of this year. 

Analysing a possible merger between the two fleets, VesselsValue said that if it were to go ahead, it would create the second most valuable tanker fleet in the world.

The current fleet values for DHT Holdings (including the 11 BW VLCCs) and Frontline Ltd combined would total $3.57 bill. The new company would consist of 34 DHT and 44 Frontline tankers.  

A Frontline, DHT and BW combination would be behind COSCO Shipping Energy Transportation valued at $3.93 bill, but ahead of China VLCC at $3.15 bill, VesselsValue calculated.  

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