Golden Ocean and Knightsbridge merge to form a dry bulk powerhouse - 14/10/2014

Fredriksen's ambitions: Golden Ocean and Knightsbridge will form a huge dry bulk firm.

THE consolidation of John Fredriksen’s bulker giants has picked up pace as Oslo-listed Golden Ocean Group and New York-listed Knightsbridge Shipping plan to merge.

The new combined company, to be called Golden Ocean Group, is being created following the recent sale of the dry bulk assets of John Fredriksen-controlled Frontline 2012 to Knightsbridge.

Together, Golden Ocean and Knightsbridge will form one of the world’s biggest dry bulk players, overtaking George Economou-controlled, New York-listed DryShips.

The combined Golden Ocean will have a modern fleet of 72 vessels, 26 of them still on order.

The combined share value of the two companies will be an estimated $493m.

The merger is subject to approval by both companies’ shareholders, to be put to the vote at general meetings in December and in January.

In the merger plan, Golden Ocean shareholders will have the right to receive 0.13749 shares in Knightsbridge for every one Golden Ocean share they hold.

In turn, Knightsbridge will issue a total of 61.5m shares to shareholders in Golden Ocean.

Once the merger is closed, a convertible bond worth up to $200m issued by Golden Ocean in January 2014 will be converted into a bond in the new company.

After the merger is completed, Hemen Holdings and its affiliates — investment companies controlled by Mr Fredriksen — will own 39% of the shares and votes in the combined company.

That percentage counts in Hemen's indirect ownership in Knightsbridge shares owned by Frontline 2012.

As part of the deal to transfer its dry bulk assets to Knightsbridge, Frontline 2012 agreed to sell dry bulk assets to Knightsbridge for 62m newly issued shares.

When full transfer of Frontline 2012 shares to Knightsbridge is completed in March 2015, Hemen’s stake in the combined company will rise to 42%.

The merger between the primary dry bulk players in the Fredriksen portfolio has been expected for some time, in part because of the compatibility of the combined companies.

“Golden Ocean contributes with a very strong balance sheet with investment capacity to the combined company while Knightsbridge Shipping contributes with a highly modern fleet with low cash breakeven; $15,000 a day for capesize ships,” wrote Herman Hilden, an analyst at RS Platou Markets in a research note.

He notes that the $493m merger valuation is 11% lower than the net asset value of $545m of the two companies.

He partly endorses the risktaking strategy behind the merger, saying that Knightsbridge’s low cash-breakeven for its capesize fleet and Golden Ocean’s significant investment capacity will allow the combined company to “take advantage of weakness in the market ahead and grow aggressively”.

“This, however, does not change market fundamentals,” he said.

In 09/10/2014