International Seaways ~3% & Diamond S Shipping ~1%
On 31 March, two of our tanker companies, International Seaways (INSW, Financial) and Diamond S Shipping (DSSI, Financial) announced their merger. Following the merger the shareholders of INSW and DSSI will hold ~56% and 44% respectively of the resulting company. We consider this to be a fair deal as the swap equation is more or less in line with the value of their assets.
The deal will create the second largest US-listed company by number of tankers (more than 100), the third largest by cargo capacity and with a balanced cru-de/product mix (70/30).
We like the deal for three reasons: i) there is a complementarity of their fleets, which allows for a broader offer to their customers, while at the same time allowing for cost efficiency. In fact, cost synergies of $23 million are expected, which, capitalised at 10x, represent more than 20% of the market value of the resulting company. ii) being a share swap, it does not add financial leverage, iii) the resulting company will have a higher market capitalisation, greater liquidity, which together with the track record of the management team of INSW, should help to reduce the discount at which it trades on its net asset value relative to comparable companies.
From Francisco Garcia Parames (Trades, Portfolio)' Cobas Asset Management first-quarter 2021 shareholder letter.
