1. THE ACQUISITION CONFLICTS WITH THE MINORITY PROTECTION RULES OF THE SWEDISH COMPANIES ACT As stated in the Swedish Companies Act, neither a General Meeting of shareholders nor a Board of Directors may make a decision that is designed to create an unfair advantage for a shareholder or another party at the expense of the company or the other shareholders. Frontline notes that Obelia Finance acquired shares for SEK 160 per share with the intention of using the shares to vote for a non-cash issue of shares to themselves. Frontline has obtained six independent appraisals of Astro Tankers§ fleet showing that the net asset value received per new ICB share amounts to SEK 89. The transaction is likely to proceed despite the fact that a shareholder owning more than half of the company§s shares is opposed to the deal. Assuming that the non-cash issue for the acquisition of Astro Tankers is not approved, Frontline will increase the offer so that all shareholders are offered SEK 125 in cash per B-share, which is SEK 36 higher than the net asset value per newly issued share that ICB will receive through the non-cash share issue.
2. THE TAKE-OVER OF ASTRO INVOLVES A TOTAL CHANGE OF ICB§S STRATEGY In all earlier written and oral communications with shareholders, the Board of Directors of ICB has declared that ICB§s strategy is to be focused on modern Suezmax and VLCC vessels. Since Frontline acquired more than 50 percent of ICB§s shares in September, this long-term strategy has been changed overnight. ICB§s Board of Directors is proposing a transaction whereby the company is acquiring five VLCC and ULCC vessels that are more than 20 years old, as well as five Aframax vessels in a size-class totally different from that of ICB§s present tonnage. Additionally, there will be a capacity increase of approximately 25 percent in the Aframax market over the next few years. Other Swedish shipping companies have recently abandoned plans for investments in Aframax tonnage, citing the risk of excess capacity and a consequent decline in freight rates and ship values.
3. UNREALISTICALLY HIGH VALUATION OF ASTRO TANKERS Six independent international appraisal institutions have, on average, valued Astro Tankers§ fleet at USD 256.9 million. According to ICB, the fleet is worth USD 284.1 million. The difference thus amounts to USD 27.2 million, or SEK 17.4 per new share the Board of Directors proposes to issue. The unrealistic nature of the valuation of Astro Tankers presented by ICB is also confirmed by the fact that the Angelicoussis Group has failed in two attempts to list Astro Tankers§ shares in the New York market. This occurred despite the fact that the valuations on these occasions were much lower than valuations that serve as a basis for the transaction with ICB.
4. SUBSTANTIAL RISKS ASSOCIATED WITH THE SHIPS By acquiring Astro Tankers, ICB would be assuming substantial technical and market-related risks associated with the five vessels built in the mid-1970s. Two of the five vessels will undergo a compulsory "Special Survey" in 1998. The estimated costs related to this inspection have not been reported. The risk of technical breakdowns, loss of revenue, as well as possible oil spills and their related financial consequences for ICB, will increase dramatically with the take-over of the older tonnage. The charter rates of the five older vessels during the past two years have been between USD 6,000 and USD 8,000 lower than that of comparable vessels in service. This confirms that the vessels have a poor reputation in the charter market and cannot be regarded as satisfactory even in their own age class.
5. A MERGER WITHOUT RATIONALISATION EFFECTS The Board of Directors is proposing an organisation in which ICB will change from having one office in Stockholm to having offices in Singapore, Piraeus, Stockholm and London. The Board has not publicised the financial effects with respect to the additional costs that such a reorganisation will involve. Nor has the Board presented an organisation plan showing the manner in which such an organisation is expected to operate, organisationally or in terms of personnel.
6. THE BOARD MEMBERS§ OWN TRANSACTIONS IN ICB SHARES CONFIRM THE BOARD§S LACK OF CREDIBILITY At the same time that ICB§s Board of Directors has recommended shareholders not to sell their ICB shares, Board members and close affiliates have sold shares or purchased put options pertaining to their private holdings of ICB shares. A number of the transactions in which they have been involved have been with Angelicoussis as counterparty and at prices substantially exceeding market prices. The Board members§ individual holdings and the active participation of the Chairman of the Board in these transactions confirm that the Board has been more engaged in protecting its own interests than in ensuring equal treatment for the company§s shareholders. It may also be questioned whether the information to which the Board and Obelia Finance had access in connection with their dealings in ICB shares was publicly available.
7. MARKET REACTION TO THE TRANSACTION Since ICB announced the Astro Tankers deal, the price of the company§s stock has fallen from SEK 115 to SEK 111 per share while the leading index for shipping stocks -- the Oslo Børs Shipping Index -- has risen approximately 6.2 percent. Nearly all former institutional owners of ICB shares have left ICB and, following the announcement of the Astro Tankers deal on September 25, 1997, holders of more than 15 percent of the company§s shares have sold their holdings to Frontline at prices below SEK 115 per share despite the fact that the ICB Board recommended the shareholders not to sell.
Frontline§s conclusion is that the proposed acquisition of Astro Tankers is designed solely to impede or prevent Frontline from implementing the offer made to ICB§s shareholders. If the acquisition of Astro Tankers is not effected, Frontline§s offer of SEK 125 per share will represent a premium of approximately 32 percent relative to the market price of the stock on August 28, 1997, the day before trading in the shares was suspended.
If the General Meeting of ICB shareholders votes to carry out the acquisition of Astro Tankers, Frontline intends to protest the action of the Meeting. Frontline has also requested that ICB§s Board of Directors call an extraordinary shareholders meeting at which Frontline will request, among other measures, that a special auditor be appointed. Frontline will also request that an examination be conducted to determine whether a suit should be filed against ICB§s Board of Directors, auditors and the shareholders who vote in favour of the Astro Tankers transaction.
Frontline intends, as a long-term owner of ICB, to take steps to ensure that the rights of shareholders are placed on an equal footing. Frontline would, as an alternative to a full take-over of ICB, consider becoming a major shareholder in ICB and operate ICB as a separate company focused on modern VLCC and Suezmax tonnage, in line with the way Nordstrom & Thulin and Argonaut is operated by the World Wide Group.
In Frontline§s opinion, the action of ICB§s Board of Directors, whereby the Series A shareholders are being placed in opposition to the company§s principal owner in an improper manner, is not designed to increase confidence in the Swedish stock market.
Frontline expects that the Board of Directors of ICB at tomorrow§s meeting of shareholders will assume its responsibility and withdraw the proposal to acquire Astro Tankers.