International Seaways' acquisition of neighbouring Diamond S Shipping was more than a year in the making, although talks were "on and off" through a coronavirus-plagued 2020, top executives told TradeWinds on Wednesday.
International Seaways chief executive Lois Zabrocky and chief financial officer Jeffrey Pribor spoke in an interview shortly after confirming the $2.2bn combination, which had first been reported by TradeWinds early on Wednesday.
"It started over a year ago," Pribor said. "These companies certainly know each other. We've known each other for awhile.
"But because of the pandemic, we've probably been working on this longer than normal. We did everything by Zoom."
Pribor added that the process "had been on-again, off-again"
"But in the last couple of quarters, it's been pretty on-again," he said.
Indeed, there have been rumours in tanker and financial circles that the two companies were in talks as far back as 2017, when Craig Stevenson-led Diamond S was still looking for a public listing and International Seaways was freshly spun off from the old Overseas Shipholding Group (OSG).
Although the managers would not address that, Zabrocky put it this way: "It never was aligned before. The timing was right here and the fit was right, and we were able to come together. The conversations have to evolve into something or else it's just more talk."
The two executives made it clear that those discussions have involved representatives of Evangelos Marinakis' Capital Ship Management, which became part of the Diamond S operation through a March 2019 merger with Capital Product Partners.
The talks will allow the combined company to "transition" out of vessel management agreements for 25 Diamond S tankers that still have about three years to run.
"It's been part of the whole negotiation and it's something that's going to happen. It's not something we're just planning to do," Zabrocky said.
As to the thesis for the merger, the executives stressed a double-barrelled benefit of adding significant scale in International Seaways' large-tanker fleet through Diamond S' 13 suezmaxes, and dramatically expanding a clean-products fleet that had waned to a half-dozen units by taking in Diamond S' 50 MR tankers.
"The merger solidifies our big-ship focus. With 14 VLCCs including our Shell newbuildings and now 15 suezmaxes, we have our big-ship concentration achieved," Zabrocky said.
"And while we have a diversified fleet, we had grown light on the products side. We do believe that crude and products hang together and products will come into their own in the next couple of years."
Zabrocky said the large-scale acquisition reminded her of OSG's 2005 takeover of Greece's Stelmar Shipping and its products fleet, which Zabrocky wound up running during an earlier stage of her career.
"If feels like coming home to a core competence," she said.
While the Diamond S product carriers average 12 years old, Zabrocky said she believes they have a useful trading life even beyond the 15-year mark some say is critical to charterers.
Diamond S last year found a good solution in placing much of the clean fleet with Norden's Norient Product Pool, Zabrocky said, while International Seaways has its own happy partnership with Ultragas of Chile in the sector. The owner will evaluate both options for the fleet going forward.
International Seaways is not expecting many departures from the existing Diamond S staff as part of the "synergies" cited in the merger release.
"Well over half of the synergies are things that have nothing to do with the staff," Pribor said.
Zabrocky added: "There's always some overlap at the management level of two public companies, but in order to run 100 ships, we're going to need a lot of people. We're going to start with everybody. It's all hands on deck."
Both companies have outsourced technical management, with International Seaways using V.Ships and its merger partner Diamond Anglo Ship Management, with expectations to continue.
Meanwhile, a decision to grant a $1.10 per share special dividend to existing International Seaways holders reflected the strength of the owner's balance sheet.
"We had $216m in cash on our balance sheet at the end of the year. As a result of that strength and tremendous liquidity, we were able to execute on this merger and return cash to our shareholders, which we've said is a priority," Pribor said.
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