DryShips: Sell On Temporary Lawsuit Denial
- Motion against dilution denied.
- Share count will continue to soar.
- Reverse split likely coming.
Last week, I cautioned investors that I didn't see much in the lawsuit against shipping firm DryShips (NASDAQ:DRYS) and its CEO. With the company outlining all of its plans through SEC filings, I thought that we would continue to see massive share dilution continue. Well, after the bell on Monday, the company announced this important update on the situation:
DryShips announced today that an application for a temporary restraining order filed last week in the Republic of the Marshall Islands by a plaintiff against the Company and its chief executive officer and chairman of the Company's board of directors, Mr. George Economou, has been denied. The temporary restraining order had sought to suspend any further issuances of new common shares by the Company at a price per share below the price specified. The Court ordered the parties to submit written memoranda concerning Plaintiff's application for a preliminary injunction, and if the Court should determine to hold oral argument, indicated that argument would proceed before the Court at 4:00 p.m. (Majuro time) on July 17, 2017.
That means that there will be at least one more week of share sales before the lawsuit continues its legal journey. Even though DryShips announced another quarterly dividend on Monday, shares lost almost 13%. Volume wasn't substantial, but if we average this many shares each day this week, I figure at least another 6 million shares will be sold to Kalani. That is in addition to what we've already seen in the past two months, seen below.
Now, it appears that DryShips' shares have rallied back over $1.00 in the after-hours session, but I don't see a reason for this. Especially, if the court strikes down the lawsuit completely, investors are looking at the share count tripling from here at the absolute least before the latest Kalani deal ends. Of course, we're likely to see another reverse split announced rather soon, with Monday's close below a buck again. Short if you can, but just don't buy otherwise. Even if the dividend turns out to be a significant amount after the reverse split, the fall in shares will more than wipe you out. Just look at the last three months, with reverse splits sending the stock lower and lower.
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