BY Jonas Cho Walsgard and Alaric Nightingale
(Bloomberg) — John Fredriksen, the billionaire who made his fortune investing in crude tankers, is reuniting two businesses he split three years ago to help gain a greater share of the oil-shipping market.
Frontline Ltd. will pay about $1.5 billion for Frontline 2012 Ltd., which was split off to control the company’s most modern ships and orders for new carriers. The combination will create a business that’s big enough to attract investment for further expansion, said Eirik Haavaldsen, an analyst at Pareto Securities AS in Oslo.
“This will create one platform for all their vessels that will allow them to start doing more merger-and-acquisition activity,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo. “It’s been known for a while that they wanted to create one entity, it’s a gathering of the pieces.”
Fredriksen, 71, has a net worth of $11.1 billion and owns assets from oil-drilling platforms to fish farms, according to data compiled by Bloomberg. The reorganization of Frontline, which he has controlled since 1996, takes place at a time when rates for shipping oil are surging. Saudi Arabia is leading OPEC in a policy of maintaining output to defend market share against booming U.S. output, causing a global supply glut.
Shares of Frontline Ltd. closed 2.8 percent lower at 19.96 kroner ($2.51) in Oslo. Those of the 2012 business climbed 11 percent.
Frontline Ltd. will buy Frontline 2012 by issuing 584 million shares worth almost 12 billion kroner, with the holder of each share in Frontline 2012 receiving 2.55 Frontline shares.
“By merging Frontline and Frontline 2012 we will regain Frontline’s position as a leading tanker company,” Fredriksen, who is chairman of both, said in a statement. “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.”
Fredriksen split Frontline to withstand falling tanker rates and avoid default. The combined company will have a fleet of about 90 vessels and about 22 new vessels scheduled for delivery from 2015 to 2017.
“With the current strong tanker market and attractive cash break-even rates, we believe the combined company will generate significant free cash,” Fredriksen said. “The intention is to pay out excess cash as dividends at the board’s discretion.”
Rates for very large crude carriers sailing to Japan from Saudi Arabia, a benchmark route, averaged $63,481 a day this year, according to data from the Baltic Exchange. That’s the highest for the first six months of any year since at least 2009, its data show.
The merger is expected to close as soon as possible after special general meetings to be held in the fourth quarter. After the transaction Fredriksen’s Hemen Holding and Ship Finance will own 52 percent and 7 percent respectively of the combined company.
“This company will become a preferred tanker company for investors,” Pareto’s Haavaldsen said by phone. “You need to have a big market cap, a liquid stock and you need to pay a dividend.”
©2015 Bloomberg News