The pace of consolidation in the crisis-hit shipping industry accelerated on Feb. 6 after three of Norway's biggest offshore oil industry service vessel (OSV) operators announced plans to merge to create one of the biggest fleets in the sector.

Shipping tycoon John Fredriksen and Norwegian billionaire Kjell Inge Roekke said they agreed to a restructuring plan for Farstad Shipping, via a debt-for-equity swap and additional share issue, solving long-running efforts to address liabilities worth 12.6 billion Norwegian crowns (US$1.53 billion) at the end of September 2016.

The duo will then merge Farstad and Fredriksen's Deep Sea Supply into Roekke's Solstad Offshore.

The move comes just days after Frontline, Fredriksen's listed oil tankers operator, launched a US $475 million offer for Double Hull Tankers, a smaller rival, while Fredriksen is also trying to resolve a US$14 billion debt crisis at his drilling rig firm, Seadrill, where he is chairman and the biggest shareholder.

It also marks the latest deal in a sector hit by overcapacity and low demand from oil firms, due to a halving of the oil price since mid-2014.

The three-way merger between Farstad, Solstad and Deep Sea Supply will create a newly named company, Solstad Farstad, which will have a combined fleet of 154 ships, making it the biggest owner of large vessels in the supply, anchor handling and construction support segments of the worldwide OSV market.

It would rank fourth overall when smaller vessels are included in the count, and will have an enterprise value of around 30 billion Norwegian crowns (US$3.64 billion), according to estimates by brokerage Pareto.

"With this solution, we provide Farstad, Solstad and Deep Sea Supply with an industrial platform to sustain the current downturn in the OSV market and be well positioned to exploit a market recovery," Farstad's CEO Karl Johan Bakken said in a statement.

As part of the deal, Farstad's banks, bondholders and other creditors agreed to convert billions of crowns that are owed into shares. In addition Roekke and Fredriksen will fully underwrite a share issue by Farstad to raise 650 million crowns.

Subsequent to completing Farstad's restructuring, the companies will then merge, with Solstad Offshore taking over the other two companies under a share exchange. Farstad shareholders will get 0.35 Solstad shares for every 12.5 Farstad shares, and Deep Sea shareholders will get 1.32 Solstad shares for every 12.5 Deep Sea shares.

As a result, Roekke's Aker will own up to one-quarter of the enlarged Solsted Offshore, while the Fredriksen family's Hemen Holding will hold up to 18%, but following the merger they plan to adjust their holdings to become "approximately equal shareholders," the companies said.

"This restructuring proposal means an increase from 39 million Farstad shares to 4.9 billion shares. It is a huge dilution [for Farstad shareholders]," said DNB credit analyst Magnus Vie Sundal.

Shares in Farstad were up 15% at 4.85 crowns by 1335 GMT when Solstad was up 23% at 13.50 crowns. Deep Sea was down 6.6% at 1.55 crowns and Aker was up 4% at 362 crowns.

Big Wolf

The move to consolidate the support vessels sector comes as Fredriksen, nicknamed "Big Wolf" for his business tactics, seeks to reinforce other parts of his shipping empire.

A week ago his tanker firm Frontline proposed a takeover of rival DHT, which was unanimously rejected late on Feb. 5 by the DHT board.

Analysts and industry sources said Fredriksen would plan to scoop up DHT's new fleet of crude supertankers cheaply, to add to his aging fleet of vessels, some of which are more than 10 years old and less efficient.

DHT's tanker fleet, which includes two vessels due to be delivered next year, were currently worth about $1.18 billion, according to estimates from shipping intelligence provider VesselsValue.

Paddy Rodgers, CEO of oil tanker company Euronav, which has a commercial tie-up with Frontline, ruled out a counter-bid for DHT and saw a successful acquisition by Fredriksen as a positive step.

"It would be a major mistake for another ship owner to come in there, counter-bidding against it to the point where one of you overpays to the detriment of your own shareholders. We are certainly not prepared to throw our hats in the ring on that basis," Rodgers told Reuters.

"We can only hope that he succeeds," he said.

Meanwhile, at Seadrill, whose share price has dived 92% over the past three years, Fredriksen is trying to rescue a company sinking under the weight of US$14 billion in liabilities.

The company recently said it may opt for a Chapter 11 bankruptcy protection filing in the U.S.

At the same time, it was also possible Fredriksen could put more of his personal money into Seadrill if other investors follow suit, financing sources said.

Seadrill's CEO Per Wullf declined to comment when contacted.

Fredriksen and Seadrill's top management have been working on a rescue plan, codenamed Project Eagle, according to documents presented to bondholders in December, ever since the crash in crude oil prices in mid-2014.

Getting a deal is complex because 42 banks are involved as well as bondholders, and the debt involves several Seadrill subsidiaries including North Atlantic Drilling, Seadrill Partners, Archer, Sevan Drilling and Asia Offshore Drilling.

"Creditors know that it is better to find a deal with a willing John Fredriksen than to drift into Chapter 11. So with a little help from rising oil prices in the next two months, the parties will be closer to finding an agreement," said Norne Securities analyst Karl-Johan Molnes.

Underscoring the challenges ahead, the value of the Seadrill group's total fleet has fallen to US$9.8 billion from US$19 billion in 2014, according to estimates from VesselsValue.

The total debt pile for all Fredriksen's business interests is estimated by Reuters at close to US$20 billion, based on data from published quarterly reports and Seadrill's plan to bondholders.

Fredriksen has diversified his investments significantly in recent years, however, including into real estate and the lucrative fish farming industry.

Business magazine Kapital, which tracks the wealth of rich Norwegians, estimated his net worth at 92 billion crowns (US$11 billion) in 2016, down from 97 billion in 2015.

(US$1 = 8.2504 Norwegian crowns)

Offshore