Could the hard work of more than a year by management of International Seaways suddenly be undone by a cash buyer willing to top its all-shares offer for Diamond S Shipping?

Probably not, but the prospect is at least raised by equity analyst Ben Nolan of Stifel after International Seaways announced a merger on Wednesday. In a client note, he examined the relatively modest 7% implied premium being paid by International Seaways and the fact that both shipowners are trading at nearly 40% discounts to their net asset values.

While the huge NAV discounts are indeed one compelling reason to do the International Seaways-Diamond S merger to begin with, they create a theoretical opening for a spoiler, Nolan argued.

"Given the transaction is still being done at a substantial discount to NAV, we do believe that it might be possible for a higher cash bid to materialise, perhaps up to $13 per share," Nolan said on Wednesday.

International Seaways is paying an implied value of $10.30 per share, roughly a 7% premium to Diamond S' previous closing price of $9.60 per share.

Nolan even floats an idea as to just the type of party who could ante up such a cash offer: Diamond S shareholder Evangelos Marinakis and his Capital Maritime.

"Capital Maritime for instance, which owns 7% of [Diamond] shares likely, could both fund and improve upon the terms with cash if they were inclined, as could other private or financial buyers," Nolan wrote.

In a message to TradeWinds on Wednesday, Nolan said his observations were "purely theoretical".

And indeed, Nolan indicated elsewhere that he does not expect another shares-based offer to surface. He also noted that 29% of Diamond S' private equity shareholders are lined up behind the International Seaways offer.

"We do expect the transaction should close as announced and [Seaways] is perhaps unlikely to be able to improve on their terms materially if at all, so we would not put a high probability on an outside cash buyer materialising, but there could be room in the price," Nolan wrote.

Nolan has both International Seaways and Diamond S trading at a 39% discount to their NAVs at the announcement. This compares to an 11% discount reflected by the rest of the tanker peer group.

By moving forward with the merger, both International Seaways and Diamond S are addressing size and trading-liquidity issues that explain at least some of the larger discount, he said.

"We believe much or all of this can be attributed to smaller market capitalisation and more limited free float, as both companies have outstanding corporate governance and reasonable balance sheets," Nolan wrote.

As to the Marinakis issue, International Seaways management indicated in an interview with TradeWinds on Wednesday that the Greek shipowner's camp has been a willing partner in negotiations that would see it phase out management contracts for 25 vessels in the Diamond S fleet.

International Seaways chief executive Lois Zabrocky and chief financial officer Jeffrey Pribor gave further detail on an investor call on Wednesday, saying they expected most of the Capital-managed tankers to be redelivered by the third and fourth quarters.

Shares of both International Seaways and Diamond S gained more than 4% in early Wednesday trading on the New York Stock Exchange.