DryShips Inc. (NASDAQ: DRYS) has been having an interesting time in the market as of late. In fact, the stock climbed by more than 50% on Friday. Today however, it is down slightly. Nonetheless, there’s good reason for the gains. But before you get too excited about Friday’s news, there are a few things you should know. Before we get into that, guys, if you haven’t already, check out Trade Ideas! At the moment (9:38), DRYS is trading at $3.08 per share after a loss of $0.02 per share (0.65%) thus far today.
Friday’s News Was Great For DRYS
As mentioned above, on Friday, DryShips found its way toward the top, gaining more than 50% in a single day. The reason for the gains was relatively simple. The company terminated its stock purchase agreement with Kalani Investments, thanks to pressure put on the company by analysts, media outlets, and investors alike. Also, George Economou, the CEO of the company, has agreed to a lock-up period on shares acquired by him that seemingly aligns his interest with those of the retail shareholders. However, there’s a bit more to it, and DRYS isn’t out of the water yet.
Digging Into The Details
Another thing to keep in mind here is that DRYS entered into a private placement agreement with George Economou. Under this agreement, he will purchase at least 36.4 million shares at a price of $2.75 per share.
DRYS will also conduct a rights offering for up to $100 million in common shares at a price of $2.75 per share. Economou agreed that he will not exercise its respective subscription rights and backstop the offering in full. So, any shares issued to Economou associated with this offering will be under a backstop commitment and be treated as repayment under the company’s existing $200 million credit facility. Also Economou has agreed to a 6-month lock-up period for all shares acquired by him in these transactions.
Sounds Good Right?
Everything sounds good. That is, until you get to the bottom line. At the end of the day, Economou could end up owning about two-thirds of the company’s equity at a 50% discount to the company’s estimated asset value per share. While he will be holding onto just about everything until at least February of next year, what happens after the hold is anyone’s guess. Considering Economou’s history at DRYS, it only makes sense to expect that what he is planning isn’t likely in the best interest of shareholders.
Stop wasting your time! Start finding winning trades in minutes with Trade Ideas!
The Bottom Line
While Economou seems to be trying to align his interest with those of shareholders, you can’t put a sheet over someone’s head and tell them that the world went dark. Economou has a history of making decisions that line his pockets with hundred dollar bills at the expense of investors. With the potential of this deal to be a big profit maker for Economou, I would strongly suggest doing some digging before getting in here. At the end of the day, DRYS could be a good company with the right leadership. Unfortunately, considering the history of the company’s current management, I wouldn’t hold my breath on a long-term change pushing toward positive moves for shareholders!
Never Miss The News Again
Do you want real-time, actionable news delivered to your inbox? Join the CNA Finance mailing list below!