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With the remaining $119.8 million worth of new DryShips (NASDAQ:DRYS) shares to be sold to Kalani by April 2019 and negative reverse split news, there should be constant pressure on the share price. I expect the stock will trade below $1 prior to the reverse split. DRYS is worthless until the share dilution is over.
Voluntary Reverse Split
After DryShips announced the 7th reverse split of 1-for-5, the stock plunged 32%. Since my article "DryShips: 90% Downside", the stock has fallen by 83% ($7 to $1.18).
- All-time high $210 million a share & All-time low $1.18 a share
- Cumulative reverse split 1-for-1,680,000 (=25 x 4 x 15 x 8 x 4 x 7 x 5)
- DRYS has to go up by 17,796,610,069% to reach its all-time high again
This is the fourth voluntary reverse split in a row. What is the necessity of this latest reverse split of 1-for-5?
- Voluntary Reverse Split 1 for 8 (linked to Kalani deal)
- Voluntary Reverse Split 1 for 4 (linked to Kalani deal)
- Voluntary Reverse Split 1 for 7 (linked to Kalani deal)
- Voluntary Reverse Split 1 for 5 (linked to Kalani deal)
The company still needs $119.8 million worth of shares to be sold to Kalani by April 2019, who will later dump them on the general public. The company simply eliminates small investors by performing voluntary reverse splits, which brings the share count to low levels so that the company can speed up the dilution process. This voluntary reverse split will bring the share count from 24 million to 4.8 million. There is no risk of non-compliance from NASDAQ; it seems the company is simply performing voluntary reverse splits solely for the purpose of selling shares to Kalani. The CEO's voting rights exceed common shareholders' voting rights and so unlimited reverse splits can be performed.
As I mentioned in my previous articles, the company is raising about $2 million per day on average. The company says that it has a share count of 24 million. I expect the share count to increase by 6 million prior to the reverse split, or for the total share count to increase to 30 million prior to the reverse split. The share price may drop below $1. To conclude, like I mentioned in my previous article "DRYS is worthless until the company cancels the remainder of the Kalani deal as well as the mixed shelf offering". I expect the share dilution will last for a year at least.
The reverse stock split will take effect, and the Company's common shares will begin trading on a split-adjusted basis on the Nasdaq Capital Market as of the opening of trading on June 22, 2017 under the existing trading symbol "DRYS". When the reverse stock split becomes effective, every five shares of the Company's issued common stock will be automatically combined into one share of common stock. As of the date of this press release, the Company had 24,066,342 common shares issued and outstanding. Effecting the reverse stock split will reduce the number of issued and outstanding common shares to approximately 4.8 million shares.
Based on my analysis, I recommend DRYS as a Sell. To read my previous articles, please click here.
Note: On March 28, 2017, George Economou's other company Ocean RIG UDW Inc (NASDAQ:ORIG) filed for Chapter 15 bankruptcy protection in the U.S. court. Ocean Rig announced that it received conditional exception from Nasdaq delisting notice. Please feel free to share and comment your views on Nasdaq's decision to allow Ocean Rig to stay listed during the restructuring process.
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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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