The Announced DryShips Reverse Stock Split

| About: DryShips Inc. (DRYS)

Summary

DryShips announced a February 19th meeting to vote on the anticipated reverse stock split.

The company has been beaten down, and the reverse stock split is another negative signal for the company.

The transformation of the company is the only thing that will save the company…a recovery in the Baltic Dry Index isn’t on the horizon.

While I had previously speculated about the coming DryShips (NASDAQ:DRYS) reverse stock split, the company has finally announced the vote during a special meeting scheduled for February 19th 2016.

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To approve one or more Amendments to the Company's Amended and Restated Articles of Incorporation to effect one or more reverse stock splits of the Company's issued and outstanding common shares at a ratio of not less than one-for-two and not more than one-for-100, inclusive, with the exact ratio to be set at a whole number within this range to be determined by the Company's board of directors (the "Board"), or any duly constituted committee thereof, at any time after approval of each amendment in its discretion, and to authorize the Board to implement any such reverse stock split by filing any such amendment with the Registrar of Corporations of the Republic of the Marshall Islands (the "Proposal").

The company has seen its stock fall precipitously over the past two years, and has spent the past year under $1. The entire industry has been plagued by an oversupply of ships capable of carrying coal and iron ore combined with a drop in Chinese demand for imported coal and iron ore.

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While the company saw a significant bump last month, equaling a return of 200% over a few days as it went from $.08 to $.27, the bump was short lived and the stock returned to the $.10 area.

The company announced it would consider a reverse stock split in the range of 1-for-2 up to 1-for-100. The intent of the reverse is to restore the price to over $1 in order to meet NASDAQ requirements, so the minimum reverse will have to be a 1-for-10…and that is at the $.10 to just meet a $1.00 target. In reality the company is looking for at least a 1-for-20 reverse stock split.

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Again, reverse stock splits are typically seen as a negative event for a company, and in the short term, stocks normally fall after a reverse.

Combine that with the state of the Baltic Dry Index and the prospects of a recovery haven't appeared on the horizon…

Then add in that George Economou is in the middle of a transformation

And the reverse share split might come in higher than 1-for-25 just to give the company a cushion. As part of the reverse, the company stated:

"The company believes that the increased market price of the common shares expected as a result of implementing a reverse stock split will improve the marketability and liquidity of the common shares and will encourage interest and trading in the common shares," DryShips said.

Conclusion

The transformation of DRYS is the only thing that will save the company in this market. Increasing the stock price will likely only give shorts a psychological cushion to continue driving the price down. For investors, look for announcements of the sale of the rest of the Dry Bulk fleet or small recoveries in the Baltic Dry Index.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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