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Complications Unwound. How DRYS Got There.
Last week, DryShips announced that it had agreed to acquire, from George Economou and other third party interests, the remaining 25% minority interest in Primelead Shareholders, Inc., the holding company and operating platform for DryShips ultra deepwater drilling rig assets including two owned and operational ultra deepwater semisubmersibles and 4 newbuilding drillship contracts as well as the commercial operating company, Ocean Rig ASA.
The transaction was structured to minimize the cash outlay and leverage with the price being dilution. Consideration for the transaction included $50 million in cash and the issuance of $280 million in face value of mandatorily convertible preferred stock, based upon a price per share of $5.36, the weighted average seven day trailing price. At the offering price, this equates to 52.2 million shares. The shares are manditorily convertible in four equal installments at $6.83 per share (a 27.5% premium) upon delivery of each of the four newbuilding drillships.
Even the Analysts Wonder
We arrived at work last Friday morning to the rather surprising news that DryShips, clearly seeing the opportunity, had once again gone out into the equity market. The company announced its second ATM Equity Offering through Merrill Lynch for up to $475 million of the company’s common shares. Back in January, DryShips had entered into an earlier agreement to sell up to $500 million, which it completed last month selling a total of approximately 95.7 million shares, generating net proceeds of ~$487.5 million after commissions. An ATM equity offering allows the company to issue common shares at any time and at the company’s discretion.
What Do DryShips And The U.S. Government Have In Common?
The answer is they both seem to be issuing lots of paper. Last week, DryShips announced two transactions designed to reduce their future financial commitments. In the first instance, it transferred its interest in three Capesize newbuildings to an unaffiliated entity generating savings of $364 million in exchange for total consideration of $116.4 million. The latter consists of $36.4 million in previously paid deposits, $30 million paid to the purchaser and two additional tranches of $25 million payable to the purchaser within 30 and 60 days respectively. The last two tranches are payable either in cash or, at the option of the company, by issuing 2.6 million shares of common stock for each tranche.
Not surprisingly, the company also unwound the previously announced acquisition of 9 Capesize bulkcarriers from affiliates of Cardiff Marine, George Economou and third parties for $1.17 billion, which was to be paid for with 19.4 million shares of the company’s common shares and the assumption of $478.3 million in debt and future commitments. The consideration to cancel this transaction will consist of the issuance of 6.5 million shares to the unaffiliated entities, subject to a six-month lock-up. The affiliated entities will receive 3.5 million warrants that give the holders the right to purchase one share of DryShips stock. The warrants will be priced at $0.01 and will have strike prices, depending on the relevant tranches of between $20 and $30 per share. Vesting will be over 18 months with an expiry of 5 years.
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Economou Out
Top Ships today announced the expiration of the exclusivity agreement between the company and an affiliate of George Economou. Mr. Economou’s affiliated entity had reduced its offer to acquire the outstanding shares of the company to $3 per share in cash, down from the original $6. After consideration of numerous factors, including the recent volatility in global markets and decline in the company’s share price, the company’s board has determined that this offer is not in the best interest of shareholders.
A True Believer Consolidates and Does Right by His Shareholders
On Monday, George Economou announced a major strategic expansion by DryShips Inc. (“DryShips”) in both its bulk and offshore businesses. First, the company acquired the equity interests, from entities controlled by Cardiff Marine Inc., in nine Capesize bulkcarriers, including five newbuildings for $690 million payable in the form of 19.4 million newly issued shares ($35.50 per share) of Dryships common stock increasing the number of shares to 63 million. In addition, the company will assume $216.3 million of existing debt and $262 in remaining shipyard installments. The latter will be funded by debt facilities in place except for $16 million that will be funded by cash flow. The implied aggregate value of the purchase is estimated at approximately $1.2 billion or approximately $130 million per vessel.
The Week in Review
The money, apparently, is in oil as two of the industry’s biggest gurus, John Fredriksen and George Economou, both make aggressive plays into the rig space. Mr. Fredriksen, of course, has long been making investments into various facets of the offshore industry and has either spawned or acquired a bevy of offshore companies to that end. It was hardly earth shattering this week when Seadrill announced that it had acquired 200,000 shares and entered into forwards to acquire 16,300,000 shares in US-listed Pride International, an offshore company with a market capitalization of $7.2 billion. The shares amount to a 9.9% stake, worth around $708 million. The move prompted Pride International to take action to lower the threshold level of ownership to trigger its stockholder rights plan from 15% to 10%. Seadrill has also asked Pride for a meeting to discuss “potential strategic benefits for both parties of a transaction between the two companies.” A merger could be on the cards – or it could not be. Mr. Fredriksen has shown himself as skillful an investor as an acquirer, using each strategy as it suits him.
DryShips Launches Bid for Ocean Rig, Plans Ultra Deepwater Spin-off
When DryShips first purchased a 40.4% stake in Ocean Rig from Cardiff Marine in December 2007 for $405 million, shareholders were perturbed and correspondingly punished the share price. Why had a dry bulk play entered the rig market, they wondered? And why did DryShips purchase interests from George Economou’s private company Cardiff Marine just weeks after Cardiff had purchased the interests itself – for a higher price? To Mr. Economou it was a shrewd business move and a good opportunity to diversify, but to shareholders it was perplexing and made the future more uncertain – and therefore more risky.
Sentiment Turns
In a welcome turn of events, the market was resoundingly upbeat this week. The pace of transactions picked up notably across sectors, and we can’t help but view this as a positive sign for the financing market going forward.
On the M&A front Excel and Quintana successfully closed their merger. Each issued and outstanding share of Quintana common stock was converted into the right to receive $13.00 in cash and 0.3979 Excel Class A common shares. The merger creates a combined company that operates a fleet of 47 vessels with a total carrying capacity of approximately 3.7 million DWT and an average age of approximately eight years. Stamatis Molaris stepped into the role of CEO of the combined company, while Hans Mende, Corbin Robertson III and Paul Cornell joined its board of directors. We were happy to hear that the deal was executed smoothly. Moreover, Nordea and the underwriting team were successful in syndicating the debt levels required to make the deal possible – without needing to bring market flex provisions into play.
Economou Proves Power of Active Investor Relations
DryShips Scores Another Buy Rating from Dahlman Rose
The Official Guide To Marine Finance Providers
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