Frontline Ltd. (NYSE/OSE: FRO) today
announced that Frontline has sent a response to the Board of DHT
Holdings Inc. to the letter received from the Board of DHT
Holdings Inc. dated May 7, 2017.
Please find below a copy of the reponse letter
sent by Frontline to the DHT Board:
Dear Mr. Lind,
We write in response to the 7 May 2017 letter from
the Board of Directors ("Board") of DHT
Holdings, Inc. ("DHT") regarding our 25 April
2017 letter proposing a business combination ("offer") between DHT and Frontline Ltd. ("Frontline").
Although your letter claims that the DHT Board is
"open to exploring alternatives" that could enhance DHT shareholder
value, it is clear from your response and prior conduct that this
is untrue. You have repeatedly refused to allow DHT shareholders a
realistic opportunity to consider our offer, and that, combined
with your use of legal mechanisms to entrench the Board and
management of DHT, can in our view only harm shareholder value and
confirm the market's persistent view that DHT's share price should
be discounted relative to NAV.
Your criticism of our offer is self-serving and
misleading, particularly in light of the fact that DHT itself has
deemed the offer "non-coercive". You focus solely on what
percentages DHT would contribute to the combined company in terms
of NAV, EBITDA and EPS, and fail to give due consideration to,
first, the immediate value creation that our offer of 0.8 Frontline
shares per DHT share would provide to your shareholders and,
second, the increased upside potential of being invested in
Frontline shares to which the market has consistently ascribed a
premium to NAV, as opposed to DHT shares to which the market has
consistently ascribed a discount to NAV.
You argue that there is nothing stopping Frontline
from making a formal tender offer directly to your shareholders.
That is misleading, because Frontline will not be able to close any
tender offer it makes without triggering the punitive dilution
provisions of the Shareholder Rights Plan (i.e., the "poison pill")
you implemented precisely to prevent such an offer by Frontline. In
addition, you largely exempted BW Group Limited ("BW Group") from these provisions of the poison pill and
granted BW Group a matching right which acts as a significant
deterrent not just in relation to Frontline but also to other
potential bidders. By your actions, you have provided BW Group with
a pathway to seize control of DHT whilst simultaneously preventing
Frontline (or any other bidder) from doing so. In particular, you
have permitted BW Group to increase its holdings to 45% of DHT
(while all other active shareholders are held under 10%). You have
also given BW Group the ability to veto competing offers, in
addition to its exclusive ability to make an offer directly to
shareholders, as Frontline has been blocked from doing by the
poison pill. The net effect of your actions (amongst other
entrenchment mechanisms you have erected such as a staggered board
of directors) has been to deprive your shareholders of any
opportunity to properly consider Frontline's offer (an offer DHT
has already determined is "non-coercive").
With respect to the other criticisms you raise in
your letter and other responses, as you continue to refuse to
engage in any meaningful good faith negotiations, we respond only
briefly as follows:
-
Earlier this year (at the time we made our
initial offer to DHT), management of DHT first stated that the NAV
of the DHT fleet was $5.70 per share. During your most recent
earnings call you declared that you have now "established" your NAV
to be $5.37 by virtue of your vessel acquisition from BW. The fact
that your share price trades at a significant discount to your
newly "established" NAV has two effects. First, it discredits
your argument that NAV should be used as a starting point for a
business combination. In fact, the starting point should be your
share price. Second, and more importantly, it raises serious
questions about why the market has consistently failed to ascribe
any premium to DHT's NAV but rather has discounted DHT's share
price relative to its NAV. We attribute that to the corporate
governance, actions and record of DHT's Board and its
management.
-
You state that we are at the mercy of a
"dominant shareholder" whose liquidity needs may be in conflict
with the interests of your shareholders. In reality, we believe the
involvement of Hemen Holdings Ltd., Frontline's largest
shareholder, is one of the key reasons why the market has
consistently ascribed a premium to Frontline's NAV.
-
Your suggestion that Frontline's largest
shareholder "siphons" returns from Frontline "via an externally
owned management company" is false. Frontline Ltd. owns 100% of the
shares in Frontline Management AS, its management
company.
-
The compensation paid to senior management of
Frontline Management AS is a fraction of that paid to the senior
management of DHT. At Frontline, compensation is strictly
aligned with our ability to pay dividends and the appreciation of
our shares.
-
It is difficult to comprehend why DHT requires
the services of co-CEOs, with a compensation package that
significantly exceeds that of any comparable tanker company. We
cannot think of a single shipping company that has two CEOs, and
query whether DHT's Board has properly considered the costs
duplication, corporate governance complexities and inefficiencies
of that arrangement. Those costs come directly out of the pockets
of DHT's shareholders.
Shareholders' total return is based on share price
appreciation and dividends received. DHT's share price has
languished at a massive discount to the liquidation value of its
fleet for years. Every day the stock market votes on the competence
of management and their ability to provide results for shareholders
in the future. Every day the market has expressed a vote of
"no confidence" in the DHT Board and its management. Our
proposal to combine with DHT did not include the retention of
either the DHT Board or senior management and, in our view, is one
of the key reasons for the imposition of the multiple entrenchment
measures you have put in place.
Every action the DHT Board has taken, from failing
to negotiate with Frontline in good faith, hiring high priced
advisors to entrench themselves and management and diluting
shareholder value with the acquisition of more vessels, has been
colored by self-interest.
DHT's press release on 28th February
includes the following statement:
'.the revised Frontline proposal
continues to be wholly inadequate and not in the best interests of
DHT or its shareholders.' (Our underlining)
In fact, DHT's Board and management have in our
view confused their own interests with those of the company and its
shareholders. It is now clear to us that DHT's Board and
management team prefer to maintain their cozy scheme and it should
be clear to all shareholders that the interests of DHT's Board and
management and the interests of its shareholders diverge.
Simply put, the ability of DHT's shareholders to trust that
DHT's Board and management will act in the best interests of the
company and its shareholders has been completely undermined.
You also incorrectly state that we have claimed
multiple times that our proposal is final and that you have taken
us at our word on this point. In fact, as reflected in our most
recent letter, we remain willing to discuss our offer and negotiate
with you in good faith, provided that the DHT Board meets its
fiduciary duties by agreeing to suspend the Shareholder Rights Plan
and Investor Rights Agreement, which prevent Frontline (and any
other bidder) from competing with BW Group's efforts to seize
control of DHT.
On behalf of Frontline and other DHT shareholders,
we again request that the DHT Board commence good faith
negotiations with Frontline on its offer, or redeem the poison pill
and permit Frontline to take its offer directly to DHT's
shareholders.
Yours sincerely,
Robert Hvide Macleod
Principal Executive Officer
Frontline Limited
Additional
Information
This communication does not constitute an
offer to sell or the solicitation of
an offer to buy any securities or a solicitation of any
vote or approval. This
communication relates to a proposed business
combination transaction with DHT
proposed by Frontline, which may become the subject of a
registration statement
filed with the Securities and Exchange Commission (the
"SEC"). This material is
not a substitute for the prospectus and/or proxy statement
Frontline would file
with the SEC regarding the proposed transaction if such a
negotiated transaction
with DHT is reached or for any other document which Frontline
may file with the
SEC or send to DHT or Frontline stockholders in
connection with the proposed
transaction. INVESTORS AND SECURITY HOLDERS OF
Frontline AND DHT ARE URGED TO
READ ANY SUCH DOCUMENTS FILED WITH THE SEC
CAREFULLY IN THEIR ENTIRETY IF AND
WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT
THE PROPOSED TRANSACTION. Such
documents would be available free of charge
through the web site maintained by the SEC at www.sec.gov
Forward-Looking
Statements
Matters discussed
in this communication may
constitute forward-looking
statements. The Private Securities Litigation Reform
Act of 1995 provides safe
harbor protections for forward-looking
statements, which include statements
concerning plans, objectives, goals, strategies, future
events or performance,
and underlying assumptions and other statements, which are other
than statements
of historical facts. Words
such as "believe", "anticipate",
"intends",
"estimate", "forecast", "project",
"plan", "potential", "may", "should",
"expect", "pending" and similar expressions identify
forward-looking statements.
The forward-looking statements in
this communication are based upon various
assumptions. Although we believe that these
assumptions were reasonable when
made, because these
assumptions are inherently subject to
significant
uncertainties and contingencies which are difficult or impossible
to predict and
are beyond our control, we cannot assure you that we will
achieve or accomplish
these expectations, beliefs or projections. The
information set forth herein
speaks only as of the date hereof, and we disclaim any
intention or obligation
to update any forward-looking statements as a result of
developments occurring
after the date of this communication. In addition to these
important factors and
matters discussed elsewhere herein, important factors
that, in our view, could
cause actual results to differ materially from those
discussed in the forward-
looking statements include DHT's
failure to accept Frontline's proposal and
enter into a definitive agreement to effect the transaction,
fluctuations in the
value of Frontline common shares
issued in connection with the
proposed
acquisition, the strength of world economies,
fluctuations in currencies and
interest rates, general market conditions,
including fluctuations in charter
hire rates and vessel values, changes in demand in the dry
bulk market, changes
in our operating expenses, including bunker
prices, drydocking and insurance
costs, the market for our vessels, availability
of financing and refinancing,
changes in governmental rules and regulations
or actions taken by regulatory
authorities, potential liability from
pending or future litigation, general
domestic and international political
conditions, potential disruption of
shipping routes due to accidents, political
events or acts by terrorists, and
other important factors described from time to time in the
reports filed by the
Frontline with the Securities and Exchange Commission.
This information is subject
to the disclosure requirements pursuant to section 5 -12 of the
Norwegian Securities Trading Act.