Tuesday, December 23, 2008
Economou-nics Drags Down DryShips
Tuesday, 23 December 2008
DryShips’ chief executive is steering an erratic course for his company, seemingly one that benefits his own privately held concern more than the public company's shareholders.. CEO George Economou was quoted Monday as saying DryShips is “likely” to cancel the purchase of nine large dry-bulk ships that it agreed to purchase from his own private fleet just a few months ago. Although the cancellation would be balance-sheet friendly in the current environment -- where empty ships are almost literally a dime a dozen -- DryShips shares plunged 11.3%, or $1.27, to $9.96, in afternoon trading.
Even with spot charter rates plummeting, DryShips announced in October it planned to take over nine vessels that had been owned by Economou’s private company, Cardiff Marine.
DryShips was to pay 19.4 million of its shares, worth $689.6 million at the time, for the ships. It would also have assumed $478.3 million of debt.
But on Monday Economou dropped a bomb on DryShips shareholders. In an interview he said DryShips is likely to cancel the acquisition. When the purchase was originally announced, investors were outraged at what seemed like the exorbitant price DryShips would be paying for Cardiff’s ships. Yet the ships were to be purchased with a stock that is now worth just $193.2 million, so what once looked expensive for DryShips is now looking cheap -- thus a bad deal for Economou's Cardiff.
If the company’s cancellation of four smaller vessels earlier this month is any indication, DryShips shareholders will be paying the price. On Dec. 10 DryShips said it failed to get bank financing for a $400.0 million transaction announced in July and that Economou's companies would keep $55.0 million in deposits. To add fuel to the fire, DryShips paid an additional $105.0 million for the cancellation as well as an exclusive option to buy the ships for $160.0 million. The option expires Dec. 31.
It is unclear if DryShips shareholders would have to pony up cancellation and other fees if in fact the nine ships are canceled.
Economou does own 30.2% of DryShips, so he stands to share some of the company's pain.
Last month, Genco Shipping & Trading announced it abandoned $53.0 million on deposit for the purchase of six new ships.
But Genco’s cancellation was with a third party, not its own CEO. Last week, Eagle Bulk Shipping announced it reached an agreement with Yangzhou Dayang Shipbuilding to cancel $363.0 million worth of ships.
Source: Forbes
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