On Monday morning, shares of shipping company DryShips (NASDAQ:DRYS) are down more than 20%, testing their 52-week low. The culprit for the fall was a $2 billion mixed shelf filing, a huge amount for a company with a market cap of just a few hundred million. After last week's non-rally following the end of the Kalani purchase, investors must be extremely disappointed yet again.
For those unaware with what a mixed shelf is, it allows a company to offer certain securities to investors moving forward. In DryShips' case, it will allow the company to sell things like common stock, preferred stock, debt, warrants, and a few other items. In the filing, the company did not give any total for any single item, allowing the flexibility for various amounts of each security to be sold.
Unfortunately, this likely means more dilution will be coming to DryShips' investors, beyond what we have already seen. Over the past year, there have been multiple reverse splits as shares have plunged from over $2,200 to less than $2, with the latest fall being thanks to the company selling $400 million worth of stock to Kalani.
Last week, the company completed its second deal with Kalani. In the end, DryShips sold almost 115 million shares at an average price of $1.74, sending the outstanding share count soaring to just over 152 million. That left the market cap as of Friday's close at around $250 million, so this mixed shelf filing was several times that amount. When DryShips completed its first mega deal with Kalani, shares soared once dilution ended. There were a lot of investors hoping for a similar rally this time around, but it didn't happen.
One of the primary reasons was that last time there were less than 40 million shares outstanding, while this time there were roughly 4 times that amount. This became a very crowded trade, and since the percentage of shares short was much lower, there wasn't a large short squeeze. So many people were in the stock ahead of the deal ending than when it finally did, there wasn't a massive amount of buying interest left, and thus the stock didn't jump.
In the end, a $2 billion mixed shelf offering from DryShips has sent shares crashing towards their 52-week lows. While it may be a while before any new securities are offered, investors are obviously worried about more dilution coming. Should shares not be able to hold above the key $1 level, it seems only a matter of time before we see another reverse split happen.
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