John Fredriksen is a frustrated hunter. The Norwegian shipping king and his oil tanker giant Frontline have spent the past year stalking tanker company DHT and its fleet of 23 oil tankers. The goal of Fredriksen (net worth: $9.8 billion) is to once again make Frontline (NYSE:FRO) the world’s biggest oil tanker fleet. But despite bid after bid, Fredriksen’s quarry, DHT Holdings, has eluded him. The frustration has grown so severe that Frontline has resorted to suing DHT to take its offer seriously. Last week Frontline sued DHT in New York. This week's legal venue is somewhat farther afield: the Marshall Islands, in the South Pacific.
The co-CEOs of DHT (short for Double Hulled Tankers) Moxnes Harfjeld and Trygve Munthe have called Frontline’s buyout offer “wholly inadequate.” As it stands, Frontline's bid is .8 of its shares for each share of DHT, or about $700 million. DHT is loathe to sell now while business is poor. Because of growing U.S. oil production, and OPEC’s recent export cuts, there’s simply less oil that needs to be shipped. That’s brought the rate for chartering a Very Large Crude Carrier from about $70,000 per day a year ago, to about $20,000 now. DHT has said it thinks this is temporary. World oil demand is at all time highs, and growing. And tanker capacity should tighten, as fewer new ships are on order.
The DHT board refused to even open negotiations with Frontline, despite the aggressor having accumulated a 16% equity stake. For good measure, they’ve also declared Frontline shares overvalued, and criticized the quality of some of Frontline’s Chinese-made ships. Frontline’s fleet has shrunk with age in recent years.
The harshest spurn came March 23, when DHT forged a deal with shipping giant BW Group (controlled by the family of billionaire Helmut Sohmen). DHT agreed to buy a collection of 11 oiltankers from BW, for which it would pay about $540 million worth of cash and stock. And just like that, BW would own a 33.5% stake in DHT, plus preferred stock that could bring it up to 45%. Frontline’s holding was diluted to about 10%.
Looked as if that was the end of it. But Fredriksen could not let it go. If he could somehow prevail in this saga, Frontline would own 78 tankers worth $3.6 billion, according to Vessels Value. That would make it the biggest oil mover and the second most valuable tanker line, trailing COSCO Energy Shipping.
On April 18 Frontline reiterated its bid to DHT shareholders, and also filed suit in New York state court asking for an injunction blocking the DHT/BW deal on the grounds that it violated the “poison pill” provision that DHT management. Frontline demanded the case be expedited, as DHT was set to take possession of the first of the BW tankers.
New York State Supreme Court Judge Barry Ostrager dismissed Frontline’s arguments and scolded them for waiting until the last minute to file a request. The judge also expressed doubt that his court even had jurisdiction over the international shipping matter. DHT on April 20 took over the first BW tanker.
Fredriksen still wouldn’t back down. On April 26, Frontlne reiterated its offer (.8 FRO shares for each 1 DHT), for the whole kit-and-kaboodle of DHT plus the 11 BW ships. DHT did not respond to Frontline’s sweetened deal by the midnight deadline. So on Thursday morning Frontline filed suit in the Marshall Islands, where DHT is registered. (It’s in the Pacific Ocean, pop. 50,000).
In an interview with TradeWinds on Thursday, an attorney for Frontline said they are looking for an injunction blocking BW from capitalizing on its new 33.5% stake in DHT to mount a takeover attempt of its own. Frontline insists it is unfair that DHT’s “poison pill” provision prevents Frontline from continuing to build its stake and prevents DHT shareholders from adequately evaluating Frontline’s bid.
Don't doubt Fredriksen’s determination to see this through. The hard-nosed son of a shipyard welder who grew up on the wrong side of Oslo, Norway, Fredriksen got his start running cargoes of fish, became an oil trader in Beirut and made his first fortune in the early 1980s as what his biographer called “the Ayatollah’s lifeline,” moving Iranian crude during the Iran-Iraq war. His tankers were hit by Iraqi missiles three times. Fredriksen accumulated a controlling stake in Frontline in 1996. The golden age of oil shipping came in 2008, when crude oil went sky-high and the cost to charter a supertanker hit $96,000 per day. Then came the collapse in 2011, when excess shipping capacity gutted the market, followed by the boom in U.S. oil production, which reduced U.S. imports. Fredriksen had no choice but to recapitalize Frontline. He injected $500 million in cash and spun off its newest ships and a pile of debt into new entity Frontline 2012. The winter has been long, by 2014 the dayrate plunged to $12,000. But it recovered last year to $70,000, providing strong enough margins that Fredriksen could recombine Frontline with Frontline 2012, and go after DHT. Last year Frontline netted $117 million on $750 million in revenues.
Aside from Frontline, Fredriksen has been focused on rescuing his oil rig company Seadrill from bankruptcy. At 72, Fredriksen’s not about to just fade away, having told the FT he has at least “three to five” years left in business. Still plenty of time to wear down DHT’s defenses.
You can read my 2012 Forbes Magazine interview with Fredriksen here.
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