The Astro Tankers acquisition dilutes ICB's shareholders
· The valuation of Astro Tankers is too high · The forecasts for ICB and Astro Tankers are based on an extremely optimistic market scenario · The auditors' statement are based on inflated values
On October 10, 1997, the Board of ICB Shipping AB ('ICB') published an information package to the shareholders of ICB relating to the proposed acquisition of Astro Tankers Limited ('Astro Tankers'). Frontline Ltd ('Frontline') finds reason to believe that the information in the above mentioned package is poorly documented.
Inflated vessel valuations Frontline has collected valuations on the vessels owned by Astro Tankers from six independent ship appraisers and second-hand ship brokers. The average fleet value according to these independent appraisers equals USD 256.9 million. According to ICB, the value of the vessels owned by Astro Tankers is equal to USD 284.1 million. Thus, the difference in value amounts to USD 27.2 million. This represents SEK 17.4 per newly issued ICB share as proposed by the Board.
On September 3, 1997, ICB stated that the Company's net asset value equalled SEK 111 per share. Even based on ICB's stated Astro Tankers net asset value of USD 167 million, the proposed non-cash share issue implies a net asset value dilution for ICB's shareholders since the proposed 11,851,691 new shares will be issued at SEK 106.8 per share. Frontline has deliberately not included the USD 72 million (SEK 546 million) goodwill, which supposedly may be created in the new proposed ICB company by capitalising ICB's presumed superior revenue generation ability and Astro Tankers presumed cost advantage.
In a valuation of the vessels owned by Astro Tankers in accordance with the above mentioned six independent appraisers, Astro's net asset value amounts to approximately USD 140 million. Based on this reduced asset value, the net asset value contribution from the Astro Tankers transaction equals only SEK 89.4 per share. This value should be compared both to the value of the ICB share prior to the announcement of Frontline's bid on the company, equal to SEK 95 per B-share, and to Frontline's offer of SEK 130 per A-share and willingness to increase the offer on the B-share to SEK 125 per share, subject to the acquisition of Astro Tankers not being implemented.
In Frontline's opinion, the six independent valuations confirm that this non-cash share issue serves only to prevent or obstruct Frontline from completing the offer to ICB's shareholders and is by no means based on commercial considerations. Thus, it violates the general clause of the Swedish Companies Act.
Optimistic market scenario and calculation of changes A further review of the above mentioned information package reveals that ICB's estimates for 1998 and 1999 are based on a very optimistic market scenario, a scenario which in Frontline's opinion is unrealistic and widely exceeds the consensus estimates among market analysts. The estimated income per day for 1998 and 1999 is 15% and 25% respectively, above current 1-year time charter rates for modern VLCC, Suezmax and Aframax tonnage. Corresponding figures for 1970s built VLCC- and ULCC tonnage implies an estimated increase of 35-40% for 1998 and 45-50% for 1999, above today's levels. These assumptions are questionable considering that Astro Tankers' tonnage historically has obtained rates substantially below the market average.
The pro forma calculation covering the January-September 1997 period in the information package reveals a 15% decrease in earnings per share as a result of the transaction. This should be held up against the Board's opinion that the Astro Tankers transaction benefits ICB's shareholders.
The auditors' statement ICB's auditors have, in accordance with the Swedish Companies Act, submitted a statement regarding ICB's Board statement. The basis for the auditors' statement regarding the value of the proposed assets to be acquired is a fairness opinion carried out by ICB's financial advisor in connection with the Astro Tankers transaction. This fairness opinion is in turn based upon, among other things, ICB's valuation of the Astro Tankers fleet as well as discussions with ICB's management. The auditors' statement therefore seems to be indirectly based upon ICB's opinion regarding value and future outlook, which implies that the auditors' statement is highly questionable, especially when compared to the above mentioned vessel valuations carried out by six independent appraisers.
Frontline owns 51.7% of the share capital and 31.4% of the votes in ICB and will work to prevent the completion of ICB's non-cash share issue.
Hamilton, Bermuda, October 15, 1997
Frontline Ltd Board of Directors
Questions should be directed at: Tom E. Jebsen, CFO of Frontline Management AS, Tel +47 23 11 40 00