Billionaire Fredriksen Merges Bulk Carriers for Recovery

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Billionaire John Fredriksen proposed to merge the two dry-bulk shippers he controls, Golden Ocean Group Ltd. and Knightsbridge Shipping Ltd., as he positions himself for consolidation and a market recovery.

Golden Ocean shareholders will receive 0.13749 of a share in Knightsbridge, which will issue 61.5 million shares, the Hamilton, Bermuda-based companies said. Fredriksen’s Hemen Holding Ltd will with affiliates control about 39 percent of the combined company after the deal.

“With the current weakness in the dry bulk market, we believe there will be attractive consolidation opportunities going forward,” Fredriksen and Ola Lorentzon, chairman and chief executive officer of Knightsbridge, said in a statement. “Upon an expected recovery of the dry bulk market and as newbuilds are brought into the fleet, we believe the combined company will generate significant cash flow.”

Fredriksen’s transaction will form one of the biggest dry-bulk shippers with 72 vessels, of which 36 are under construction, in a market suffering from oversupply since the financial crisis in 2008. The Baltic Dry Index, which tracks shipping rates for dry cargo, has fallen about 90 percent since a peak in June, 2008.

Shares Jump

According to Platou Markets analyst Herman Hildan the deal values Golden Ocean at 6.99 kroner a share, a 9.4 percent premium to yesterday’s closing price. This gives a merger valuation for Golden Ocean of $483 million, 11 percent below its net asset value of $545 million based on recent broker quotes, he said.

Golden Ocean rose 6.2 percent to 6.785 kroner as of 10:12 a.m. in Oslo.

With “low cash break-even” on the Knightsbridge fleet “and significant investment capacity from the Golden Ocean balance sheet we expect the company to take advantage of weakness in the market ahead and grow aggressively,” Hildan said. “This however, does not change market fundamentals.”

The combined company will be run by Golden Ocean CEO Herman Billung. The merger is subject to the approval of 75 percent of shareholders at Golden Ocean and Knightsbridge in general meetings to be held in December and January, respectively.

Golden Ocean has a market capitalization of about 2.9 billion kroner ($450 million), while Knightsbridge is valued at $386 million.

Knightsbridge will be the surviving legal entity and will be renamed Golden Ocean Group Ltd. It will apply for a secondary listing on the Oslo stock exchange.