Tanker operator Euronav is to buy U.S. rival Gener8 Maritime to create one of the world's top oil shipping fleets, the companies said on Thursday, in an all-stock deal worth an estimated $490 million.
Tanker companies have faced tough conditions in recent months, partly due to a glut of ships available for hire, and as a result have been looking for ways to build scale and cut costs.
The Euronav deal is the first major M&A transaction since Oslo-listed tanker player Frontline said in June it had abandoned its pursuit of New York-listed rival DHT Holdings .
Euronav, headquartered in Belgium, said the deal would create a tanker group with "tangible economies of scale" and an estimated market capitalisation of about $1.8 billion.
"This new, well capitalised combined entity will, I believe, be able to deliver sustainable benefits over time to shareholders," Euronav chief executive Paddy Rodgers told Reuters.
Rogers said this deal was an opportunity to drive some consolidation in a fragmented sector, where the tanker market faced "a number of headwinds."
The market is expected to face a weaker earnings outlook in coming months due also to softer demand. Average daily rates for VLCC supertankers are currently around $16,000 a day, which is below breakeven levels of just over $21,000 a day for some players.
Euronav's shares rose 4.5 percent after the announcement and were last trading 2.28 percent higher at 6.99 euros a share by 1320 GMT on the Euronext exchange.
In pre-market trading in New York, Gener8's shares were up 30.4 percent and Euronav's New York listed shares were 4.3 percent higher.
Peter Georgiopoulos, chairman and CEO of Gener8, said in a statement his company had been a willing buyer or seller depending upon what was best for shareholders.
"This transaction creates the largest independent VLCC fleet in the world," he added.
Under the deal, which will make Gener8 a wholly-owned subsidiary of Euronav, the Belgian company said it would issue about 60.9 million new shares at an exchange ratio of 0.7272 Euronav shares for each share of Gener8.
Based on a Reuters calculation, the deal is worth about 413 million euros ($490 million).
Subject to regulatory and shareholder approval, the deal will result in Euronav shareholders owning approximately 72 percent of the issued share capital of the combined group and Gener8 shareholders owning approximately 28 percent, the companies said.
"Euronav will take a quantum leap forward and further consolidates the market and its own position as undisputed market leader in the global tanker market," KBC Securities said in a note earlier on Thursday.
In May, Scorpio Tankers reached an agreement to acquire the fleet of Navig8 Product Tankers.
By Jonathan Saul and Alan Charlish