Why Frontline Ltd. (NYSE:FRO) Can’t Acquire DHT Holdings Inc (NYSE:DHT)

Frontline Ltd

Frontline Ltd. (NYSE:FRO) recently made an unsolicited offer to acquire rival DHT Holdings Inc (NYSE:DHT) in a stock swap transaction, but the management of DHT quickly responded by adopting an antitakeover plan known as the poison pill plan.

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Frontline’s offer values DHT at $475 million or $5.09 a share, indicating a premium of 20% over the closing price on the last trading day before Frontline went public with its takeover plan. DHT is carrying a debt of $685 million.

DHT moves to block hostile takeover

Frontline already owns a 16.4% stake in DHT. While Frontline could boost its stake in DHT by acquiring more shares of the company in the open market to take control of it, the poison pill defense would make such maneuvers difficult. With the poison pill plan in place, the management of DHT can easily increase the company’s share count, making it difficult for Frontline to take control of the company.

DHT management silent on what it wants

Though the antitakeover move by DHT suggests the management of the company isn’t impressed with Frontline’s offer, DHT hasn’t said what it would consider a fair takeover price. However, analysts say that Frontline would have to sweeten its offer to get past DHT’s antitakeover wall. Some have said that an offer in the range of $6.5 – $7.00 would be appealing for DHT.

“Today’s net asset value of $5 per share in DHT reflects a low cycle. Over time, vessel values should be higher,” said analyst Frode Moerkedal of Clarkson Platou Securities.

Creating a leader in oil cargo transportation industry

If Frontline succeeds to acquire DHT, the combined entity would be the world’s largest publicly traded oil tanker company boasting more than 72 tankers. Frontline already has about a dozen very large crude carriers (VLCCs) and acquiring DHT would expand its fleet of VLCCs.

Shares of DHT have declined more than 18% over the last 12 months, while Frontline shares have dropped more than 87% over the same period.

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