DryShips: The Latest Massive Dilution Round

| About: DryShips Inc. (DRYS)


Company sold another $75 million of stock.

Shares could already over 100 million.

Only a matter of time to next reverse split.

While US markets continue to head to new highs almost daily at this point, there is one stock that continues to head in the opposite direction. Shipping name DryShips (NASDAQ:DRYS) continues to fall after its latest $200 million share sale agreement with Kalani Investments. As more and more dilution adds up, shares continue to plummet, as seen below:

(Source: Yahoo! Finance)

At this point, DryShips basically is selling a large block of stock to Kalani every week. Before this second Kalani deal started, a little more than 36 million shares were outstanding. After last week's sale, that number had soared to more than 58 million, and much of the Kalani deal was still pending. Well, after the bell on Friday, DryShips filed another 6-K detailing the latest round of this deal.

As mutually agreed to by the Company and the Investor, the Company sold 44,958,830 Shares to the Investor, pursuant to a Fixed Request Notice with a Fixed Request Amount Requested of $75.0 million following a Pricing Period from February 27, 2017 to March 3, 2017. The Fixed Request Amount was $75.0 million, subject to a price per share of approximately $1.67 mutually agreed to by the parties for an aggregate gross purchase price of $75.0 million, resulting in estimated net proceeds of $74.3 million, after deducting the Company's estimated aggregate offering expenses.

Between the date of the Purchase Agreement, February 17, 2017, and March 3, 2017, the Company has sold an aggregate 67,441,201 Shares to the Investor at an average price of approximately $1.93 per share. The aggregate gross purchase price for these Shares was $130.0 million. The Company's estimated aggregate net proceeds from the sale of these Shares is approximately $128.7 million, after deducting estimated aggregate offering expenses. Following the settlement for all of such Shares sold as of the date hereof, the Company will have a total of 103,974,393 shares of common stock outstanding. As of the date hereof, up to $70.0 million of the Shares is remaining that the Company may sell pursuant to the Purchase Agreement.

So with about two-thirds of this Kalani deal completed, the share count has gone from 36 million plus to almost 104 million. There is still $70 million worth of potential purchases to go, which, at Friday's closing price of $1.37, would equal another 51 million shares of dilution. If investors keep selling the stock, the dilution could be even more, although the math may get a little complicated soon if a reverse split happens before the sale is complete.

DryShips' shares are down about 70% since the latest Kalani deal was announced, and there's still $70 million of potential dilution coming. It would not surprise me to see shares continue to fall until the Kalani deal is completed, which is usually when we then see a quick but sharp relief rally. With DryShips' shares heading to $1 sometime next week if this pattern continues, it is only a matter of time before the next reverse split is announced. To review all of my prior DryShips coverage, click here.

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

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