After the general meeting in ICB Shipping AB on Friday October 10, 1997, Frontline Ltd. has, after consulting several of the Company's main shareholders, reviewed its future strategy with regards to the Company's investment in ICB.
In Frontline's opinion there are weighty legal arguments which may reverse the decision made at ICB's general assembly to acquire Astro Tankers. Settlement to selling shareholders may therefore not take place.
During Friday's general assembly Frontline's representatives pointed out a long list of errors and omissions relating to the planned Astro non-cash share issue including: exceeding the time limit for presenting documentation, inadequate information in the information memorandum and inadequate auditor's and advisor's statements. In addition to legal inadequacies, Frontline established, by presenting 10 independent fleet appraisals, that the valuation used as a basis for the transaction overvalues Astro's assets by approximately USD 25 million.
It took ICB's board more than two hours to process Frontline's objections, whereby Frontline's representatives were contacted with a settlement proposal. Frontline found that this proposal was not in line with Frontline's long-term interests in ICB and the offer was therefore rejected. The general assembly was then re-summoned, in spite of Frontline's legal objections. The objections were later booked in the protocol.
Frontline, as owner of more than 10% of ICB's share capital, filed a petition for an extraordinary shareholder meeting in ICB, at the end of the meeting. At this extraordinary shareholders meeting, Frontline intends to demand a special review of the Astro transaction. A petition has also been filed for a review of the relationship between ICB and Stockholm Chartering as well as the appointment of a minority auditor. Depending on the outcome of these reviews, Frontline will prepare civil law suits against the parties involved in the Astro transaction.
Frontline's long-term objective of a merger between Frontline and ICB is maintained in spite of the outcome of last Friday's general assembly meeting. Frontline's current strategy is as follows:
· Frontline will maintain its original offer of SEK 115 per B-share and SEK 130 per A-share. The offer will, for the time being, be extended until October 31, 1997. · Frontline's investment in ICB will be transferred into a separate holding subsidiary. The existing moderate bank financing of the ICB investment, which has duration of one year, will be replaced with long-term financing. · Frontline will use legal measures to impede the approval of the Astro transaction. · Regardless of the completion of the Astro transaction, Frontline will remain ICB's main shareholder. Frontline will have negative control in ICB, and may thereby affect ICB's development, for instance in connection with the change of domicile or later equity issues in ICB. In this regard, Frontline's primary demand will be to equalise the voting rights of the two share classes. · If Frontline finds it commercially sound, or necessary in order to protect its investment in ICB, Frontline will consider increasing its share position through the outstanding offer or through purchases in the market place. · ICB's results will be booked by Frontline using the equity method. Based on estimates presented by ICB, the 1998 contribution will represent USD 35 million. Interest cost is expected to amount to USD 5 - 8 million per year depending on the final debt ratio.
Frontline's board would like to emphasise that the investment in ICB currently accounts for less than 15% of Frontline's total assets including the value of newbuilding options. This implies that the development in ICB will have only minor implications for Frontline's results and valuation.
Frontline's results for the third quarter will be announced on November 24. A merger with London & Overseas Freighters ('LOF') followed by a listing of the new LOF/Frontline in New York is expected to be completed by the end of the fourth quarter. In view of the good market balance which exists in the tanker market, and Frontline's strong market position, the Board is optimistic with regards to the company's value and earnings prospects.
Hamilton, Bermuda, October 21, 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