Euronav (NYSE:EURN) stock is up 10% today on news that the oil tanker will merge with rival Frontline (NYSE:FRO) in a $4.2 billion deal.
In announcing the deal, the two companies said the merger will create a new market leader for the shipping of oil products around the world. The merged company will have a market capitalization of $4.2 billion and a global fleet of 146 vessels.
Frontline shares declined 5% on news of the merger.
What Happened With EURN Stock
In a news release, Euronav and Frontline said they have signed a term sheet and the two company’s boards of directors have approved an all-stock merger. The combination would be based on an exchange ratio of 1.45 shares in Frontline for every share of Euronav. Euronav shareholders would own 59% of the merged entity and Frontline shareholders would own the remaining 41%.
“A combination of Frontline and Euronav would establish a market leader in the tanker market and position the combined group for continued shareholder value creation in addition to significant synergies,” said Frontline founder John Fredriksen in the news release.
The merger is still subject to regulatory approval.
Why It Matters
The timing of the merger between Euronav and Frontline is interesting, coming as it does with oil prices elevated above $100 per barrel. Brent crude oil, the international benchmark, is currently trading at $101.65 a barrel but has been as high as $140 per barrel in recent weeks following Russia’s invasion of Ukraine.
The merger also comes at a time when the tanker industry has been in a prolonged slump amid questions over its long-term viability. The sector’s future has been thrown in doubt as governments around the world actively work to lessen their reliance on hydro-carbon fuels and reduce greenhouse gas emissions thought to cause climate change.
The merger of Euronav and Frontline could prompt a wave of consolidations in the oil shipping industry as tanker companies look to achieve economies of scale.
What’s Next for Euronav
Investors are reacting positively to news of the Euronav and Frontline tie-up, with EURN stock trending higher today. Today’s gains build on a 35% year-to-date increase in Euronav’s stock as demand for oil strengthens and prices rise. Whether the merger gets the required regulatory approvals remains to be seen. But should the deal go through, it will be positive for the companies involved and their shareholders.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
