Dryships Transactions with CEO Don't Help

Some might recall that I have written a few posts on DryShips (DRYS) in regards to the completely narrow minded PE valuations being used for the company in the past (as well as for the entire dry bulk industry)

Well the stock has been creamed, now at $11 vs a 52 week high of $117, though has rebounded from a low down near (gasp) $3. 

Due to the massive collapse in dry bulk rates, whose volatility was the reason why 1-year forward PE is almost useless for drybulk valuation, vessel prices for dry bulk ships have collapsed and DRYS has been unable to get financing for some of its planned ship purchases. Thus just the other day the company announced that it had cancelled the purchase of 4 ships for $400m.

The detail of this news which just doesn't help market confidence in DRYS management is the following:

DryShips Inc. said Wednesday it had canceled the purchase of four dry bulk carriers from companies controlled by its own CEO, saying it failed to get bank financing for the $400 million deal.
DryShips said Chairman and Chief Executive George Economou's companies would keep $55 million in deposits.

And DryShips said it paid the companies controlled by Economou an additional $105 million for cancellation of the sale and an exclusive option to buy the ships in a block deal for $160 million. The option expires Dec. 31.

Now maybe these transactions have all been properly performed in the best interests of DRYS shareholders, but these transactions, at best, appear to leave room for conflicts of interest. Transactions of this kind surely don't help in the current environment for dry bulk shipping... given that DRYS just lost $160m due to a cancelled transaction... vs. its current market cap of just $470m. I realize that taking the ships might have meant operating losses on them since markets were weak, and they would have been paying prices well above market. But perhaps the original purchase decision was at fault, when they were buying ships at extremely high prices historically... and from the companies own CEO. Again, while the checks might be in place, even the appearance of potential conflicst of interest can undermine investor trust.

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