Bahri and Saudi Aramco's Vela plan $1.3 billion merger

Proposed deal would create one of world's largest shipping companies.
Bahri CEO Saleh Al Jasser.
Bahri CEO Saleh Al Jasser.

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The National Shipping Company of Saudi Arabia (Bahri) and Saudi Aramco have signed a non-binding memorandum of understanding (MOU) to pursue the merger of the fleets and operations.

The proposed merger would see Bahri and Vela International Marine Ltd. (a subsidiary of Saudi Aramco) join to create a large and more diversified national shipping company.

This merger of ships, personnel and business systems from Vela and Bahri along with management responsibility for Saudi Aramco’s very large crude carrier (VLCC) transportation system will be implemented within the corporate structure of Bahri.

With 77 vessels in its fleet ¬following the transaction – 32 VLCCs, 20 chemical tankers, 5 product tankers, 4 roll-on roll-offs (ROROs) and 16 vessels under-construction – Bahri would become the fourth-largest owner of VLCCs globally, creating a platform for continued economic growth and human capital development in the Kingdom. It would also expand the ability of Saudi Aramco and the Kingdom to meet future maritime transport needs for its expanding downstream businesses while continuing to reliably and efficiently serve the current customers of both companies.

Through the transaction, Bahri would be the exclusive provider of VLCC crude oil shipping services to Saudi Aramco under a long-term agreement and would take responsibility for maintaining reliable crude transportation at all times. Furthermore, the two companies plan to explore ways to expand their cooperation in the maritime sector.

Under the terms of the proposed transaction, Bahri would pay Vela a total consideration of approximately US$1.3 billion. The consideration will be comprised of a cash payment of US$832.75 million in addition to 78,750,000 new Bahri shares to be issued to Vela at an agreed price of SAR22.25 per share, representing a 20 per cent shareholding in Bahri.

Bahri is currently considering raising the cash consideration through debt financing from a number of sources and has appointed JP Morgan Capital Saudi Arabia as a financial advisor for this transaction, while Aramco has appointed HSBC Saudi Arabia as a financial advisor for the same purpose.

“By creating a new global leader in shipping, Saudi Aramco hopes to build a strong company that can leverage its capabilities in the shipping sector and would meet its growing business portfolio. This company in turn will serve as a national champion that will promote the development of a thriving national maritime industry that creates jobs and other long-term opportunities for the Kingdom,” said Saudi Aramco president and CEO Khalid Al-Falih.

While Bahri chairman Abdullah Al-Rubaian added: “This is a transformational step for Bahri to strengthen its strategic partnership with Saudi Aramco and offers expanded future growth opportunities to create long-term value for our shareholders.”

The proposed transaction is subject to a number of conditions and regulatory approvals, including completion of satisfactory legal, financial and technical due diligence, negotiation and agreement on the terms of the definitive transaction documents, approval of the transaction and related capital increase by Bahri’s shareholders, and obtaining certain regulatory approvals including, without limitation, the approval of the Capital Market Authority.

This MoU expires when both parties sign definitive agreement or by notice from either party to the other. The parties intend to work toward signing the definitive transaction documentation in the fourth quarter of 2012 and to complete the transaction during the course of 2013.
 

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