US documents reveal Gener8 was at centre of takeover dogfight

Peter Georgiopoulos had several deals in the air — including, it seems, negotiations with Chinese giant Cosco — before Euronav won out

Gener8 Maritime agreed to be acquired by rival Euronav in December after a half-dozen other options failed to gel in 2016 and 2017, a recent filing indicates.

One of those alternatives saw Gener8 as the aggressor in a merger with Euronav that would have featured a combined management team and board, as reported this week in TradeWinds’ quarterly magazine, TW+.

In another twist, an Asian owner — believed to be China Cosco Shipping — bettered Euronav’s terms in an all-cash deal that ultimately was not chosen by the Gener8 board.

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These details are contained in a 153-page registration document filed by Euronav with US securities regulators. Some of the options featured Gener8 as the acquired company, while others contemplated it being the surviving owner.

The origins of Euronav chief executive Paddy Rodgers’ Christmas week scoop of Peter Georgiopoulos-led Gener8 date back to July 2016, when the Belgian owner did its first evaluation — the start of a slow, methodical process that lasted 17 months.

The six potential partners over that time are not identified in the document, but are listed as Companies A to F.

Some are fairly easy to identify. Company A, for example, is clearly John Fredriksen’s Frontline Ltd, which made public its pursuit of Gener8.

Company B appears to be Idan Ofer’s Quantum Pacific Shipping, whose interest in Gener8 was revealed by TradeWinds in February 2017.

Others are more challenging to identify, but two of the companies Gener8 appears to have pursued are probably New York-listed tanker owner International Seaways and Tanker Investments Ltd, the Teekay Corp offshoot ultimately acquired by sister owner Teekay Tankers.

The document includes a range of revelations.

Gener8 had a lot on its plate from March 2017. Georgiopoulos was busy rounding up a fresh capital injection from an unnamed financial source, believed to be in the private equity/family office realm.

The commitment allowed Gener8 to present Euronav with a proposed merger featuring a combined management and board. By mid-May, the two companies had held meetings, but Euronav rejected the plan.

On 20 March, Euronav had offered to buy the newest of Gener8’s VLCCs, an offer that Gener8 turned down.

In April, Gener8 formed a “transaction advisory committee” made up of members of its board of directors. They included one former employee of a major shareholder — Ethan Auerbach of BlueMountain Capital Management — and two current employees of leading holders: Adam Pierce of Oaktree Capital Management and Steven D Smith of Aurora Management. Around the same time, Gener8 retained UBS as a financial advisor.

Meanwhile, Quantum Pacific and Frontline were pressing Gener8 with merger proposals. Gener8 held meetings with representatives of both companies.

June entry

By early June, a company believed to be International Seaways was also under consideration and had access to Gener8’s “data room”. It is believed that Gener8 initiated the contact and would have been the acquirer.

Euronav never faded from the picture, however. In rejecting Gener8’s proposal in May, Euronav management advised Gener8’s transactions committee that they might respond with their own all-shares proposal for an acquisition. That is essentially the deal that blossomed in December.

Although in the documents, the company is identified only as “a privately held shipping company”, Company B is believed to be Quantum Pacific.

Gener8’s board “determined that the initial proposal of Company B was not in the best interests of Gener8 because [of], among other reasons, Company B’s fleet profile and the potential amount of leverage resulting from a transaction with Company B”, especially considering other potential offers.

The talks with Frontline looked to be more substantial, and included a meeting between Smith and “Company A’s largest shareholder”, which would appear to be Fredriksen.

d898d0ccfca98393c62ee1bf3e6d7568 Euronav chief executive Paddy Rodgers took 17 months planning the Navig8 takeover Photo: Susanne Hakuba

But by 26 June 2017, Frontline had indicated its intent to terminate discussions, as was indicated in press reports at the time.

Although it was generally believed that talks ended there, Smith met the “chief executive officer of Company A” — that would presumably be Robert Macleod of Frontline — as late as 19 September and was told of “continuing interest in a potential strategic transaction”.

Meanwhile, discussions with International Seaways continued through last summer and contemplated a stock-for-stock deal based on net asset values.

Perceived benefits included the increased size of the combined company, improved access to capital markets, enhanced liquidity and an improved leverage profile.

“Among the risks discussed were the addition of older Company F vessels to the combined company’s fleet and the possibility of the combined company having to engage in vessel sales during periods of weak market conditions,” the proxy filing states.

Seaways broke off discussions on 22 September as the Euronav option was heating up. It ended up negotiating a side deal to take six of Gener8’s VLCCs as part of Euronav’s attempt to “de-risk” the takeover.

One of the main relations from the proxy filing is interest from “an Asia-based company” known as Company G, which was broached in late October. Sources believe it to be Cosco, the giant Chinese shipowner.

Discussions led to a 13 November letter from this suitor “proposing a cash acquisition of Gener8 shares [representing] a greater premium than the implied premium reflected in Euronav’s proposal”.

However, the Gener8 board was concerned about “uncertain timing for receiving overseas governmental approvals that would be necessary for a business combination... in addition to the possible review of the transaction by the Committee on Foreign Investment in the US”.

Such concerns apparently placed a chill on the option, although Gener8 did propose a period of “co-exclusivity” with Company G and Euronav. Euronav rejected the proposal on 16 November.

Because of Cosco’s proven ability in the capital markets, some observers suggest that the risk to a deal might have been overstated. They point to another factor.

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The filing says Gener8's board preferred an all-shares combination to a cash deal. A likely reason: the private equity investors are “under water” on their investments in Gener8, which went public at $14 in 2015 and was below $6 this week.

A cash deal essentially would have forced the firms to “mark to market” their losses. An all-stock deal at least keeps alive the possibility that future gains in the share price of the combined company could rescue their returns.