Why frontline stock is front and center today

What happened

Shares of an ocean tanker company First line (NYSE: FRO) surged on Friday, up 12.3% at 12:55 a.m. ET, after announcing this morning its intention to merge with its Belgian rival Euronav S.A. (NYSE:EURN) in a $4.2 billion transaction.

Although this looks more like a merger of equals than an acquisition of the latter by the former, investors seem to think this is better news for Frontline than for Euronav – whose shares have risen by a smaller 8 .9%.

Image source: Getty Images.

So what

Euronav shareholders will exchange their shares for new Frontline shares at a ratio of 1:1.45. Ultimately, current Euronav shareholders will own 59% of the shares of the merged company, and current Frontline shareholders will own 41%.

The new company will retain the Frontline name, operate from Belgium, Greece, Norway, Singapore, the UK and the US, and be led by current Euronav CEO Hugo De Stoop.

Management expects the total market capitalization of the new and improved Frontline to exceed $4.2 billion (a safe assumption since Frontline and Euronav combined have a market capitalization of approximately $4.7 billion today), and the The new company’s combined fleet will include “69 VLCCs and 57 Suezmax vessels and 20 LR2/Aframax vessels.”

Now what

Financially speaking, management promises “significant overhead and other savings synergies expected to be extracted from” this new “tanker market leader”. But management has not precisely quantified these synergies, nor specified what it expects from a merged company in terms of turnover or annual profit.

At a minimum, however, leaving aside the issue of “synergies” for now, investors can anticipate that a 1+1 combination of the companies should at least keep the $1.2 billion in combined annual revenue of the two intact. companies. Hopefully it will also reduce the amount of money the companies have lost separately – $350 million in total over the past 12 months.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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