Blog Coverage Frontline’s Latest Bid Fell Short of DHT Holdings’ Expectations

LONDON, UK / ACCESSWIRE / April 27, 2017 / Active Wall St. blog coverage looks at the headline from DHT Holdings, Inc. (NYSE: DHT) and Frontline Ltd. (NYSE: FRO). Frontline made a fresh offer to acquire all outstanding shares of DHT Holdings on April 26, 2017. DHT confirmed receipt of the fresh all stock exchange offer from Frontline but termed it as “Unimproved proposal”. Register with us now for your free membership and blog access at:

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Hamilton, Bermuda based Frontline is the world’s largest oil tanker shipping Company and is controlled by Norwegian business and shipping magnate John Fredriksen. Its primarily business is seaborne transportation of crude oil and oil products. Currently, Frontline’s fleet includes 21 VLCCs, 17 Suezmaxes, 14 long-range product tankers, 3 Aframaxes, and 1 medium-range oil tanker.

Hamilton, Bermuda based DHT is an independent crude oil tanker Company which trades internationally. As on January 31, 2017, DHT fleet includes 19 VLCCs and 2 Aframaxes. It is expecting deliveries of 2 VLCC newbuildings in 2018. DHT operates its business via integrated management Companies based in Oslo, Norway, and Singapore.

Frontline’s current offer

Frontline had sent the recent revised proposal via a letter addressed to Erik Lind, Chairman of DHT’s Board on April 25, 2017. The letter came with a request to respond to Frontline’s offer within 24 hours, i.e. by 12:00 p.m., New York City time, on April 26, 2017.

Frontline’s all stock option offered to give 0.8 Frontline’s shares for each DHT’s share. The offer takes into consideration ships delivered and as well as ships yet to be delivered by BW Group Ltd, as well as the $265 million worth of shares issued by DHT to BW Group. Frontline feels that the offer represents 18% premium to DHT’s volume weighted average price as on April 21, 2017.

Frontline feels that the merger with DHT will create one of the largest public tanker Company in terms of the fleet size, market capitalization, and trading liquidity. Frontline feels that the deal would lower general and administrative cost per vessel and help in savings due to cost synergies. Frontline has a better access to the financial markets which would help in improved cash flow generation.

Commenting on the recent offer Robert Hvide Macleod, CEO of Frontline Management AS said:

“We are convinced that the proposed new combination of Frontline and DHT will maximize 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.”

DHT’s response

DHT has responded to Frontline’s offer by saying that it the current proposal is very similar to the proposal received from Frontline in February 2017 and has the same share exchange ratio. DHT has assured that as a part of its “fiduciary” duty, the Board of Directors will look into the proposal and evaluate the same in detail. It also mentioned that the time given to respond to the offer was very unreasonable and as such it will react in due course.

Responding to Frontline’s current offer Erik Lind, Chairman of the DHT Board said:

“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.”

Background

Frontline holds 16.4% outstanding common shares of DHT as on January 30, 2017 and had made numerous attempts to acquire the outstanding shares of DHT. Frontline had made its first offer in January 2017, followed by a revised offer in February 2017. In the January 2017 proposal, Frontline offered 0.725 Frontline’s shares for each DHT’s share. The first offer was rejected by the DHT Board saying that the offer undervalues the Company and it was “wholly inadequate”. Frontline made a revised offer in February 2017 wherein it offered 0.8 Frontline’s shares for each DHT’s share. This proposal was also rejected by the DHT’s Board saying that the proposal is not in the best interest of the Company and was still wholly inadequate as it undervalues DHT’s business.

On March 23, 2017, DHT entered into an agreement with BW Group Ltd. to acquire a fleet of 11 VLCC’s (Very Large Crude Carriers) for a consideration of approximately $538 million. For this transaction, DHT will issue approximately $256 million worth of stock to BW Group at a price of $5.37 per share. Apart from this DHT will pay $177.36 million in cash and take over approximately $104.16 million in debt from BW Group. Once BW Group completes the delivery of all vessels and novation of newbuilding contracts to DHT, BW Group will own approximately 33.5% stake in DHT. On April 18, 2017, Frontline filed a complaint in Court to issue temporary restraining order to stop DHT from acquiring the fleet of VLCC’s from BW Group, which is challenged by DHT. On April 20, 2017, the court rejects Frontline’s complaint.

Given the acrimonious relationship of Frontline with DHT post the DHT/BW Group deal, it is highly likely that DHT’s Board may once again reject Frontline’s latest proposal.

Stock Performance

On Wednesday, April 26, 2017, the stock closed the trading session at $4.82, jumping 3.21% from its previous closing price of $4.67. A total volume of 2.46 million shares have exchanged hands, which was higher than the 3-month average volume of 1.57 million shares. DHT Holdings’ stock price advanced 10.05% in the last month, 11.36% in the past three months, and 13.00% in the previous six months. Moreover, the stock surged 18.36% since the start of the year. The stock currently has a market cap of $444.60 million and has a dividend yield of 6.64%.

At the close of trading session on Wednesday, Frontline’s stock price marginally declined 0.89% to end the day at $6.67. A total volume of 698.26 thousand shares were exchanged during the session. The Company’s shares are trading at a PE ratio of 9.06 and have a dividend yield of 9.00%. The stock currently has a market cap of $1.14 billion.

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