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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (30533)	4/22/2008 11:54:05 AM
From: E_K_S	Read Replies (4) of 78627

DryShips Inc. Acquires 33,254,576 Additional Shares and Launches Mandatory Offer for Ocean Rig ASA biz.yahoo.com --------------------------------------------------------- This will give DRYs a total 4 UDW rigs with the option to acquire an additional 2 w/ delivery in 2011. If they are able to acquire the additional Ocean Rig ASA shares at the offered price, the acquisition PE is around 4x expected earnings if all new rigs are contracted at current rates. finance.yahoo.com The combined companies should generate 50% revenues from dry bulk shipping and 50% from UDW drilling. Assuming UDW day rates are contracted at the current $600,000/day each UDW has a pay back of less than 2 years. The value proposition is the combined company should have a more predictable long term cash flow past 2011, they enter a tight market for UDW rigs where day rates could go much higher based on global demand (especially in Brazil), the overall dry bulk fleet has been trimmed and ship age is less than 5 years, and free flow cash is substantial which can be used to reduce debt. Once management consolidates the operations, I believe PE expansion will occur from PE 4 to PE 6-10. Brazil leads world in ships that drill for deepwater oil dallasnews.com From the article:"..."We have renewed the contracts of five rigs for $4 billion for five years," Mr. Barbassa said. "Nine others are being built in many different places to be delivered starting next year. We're going to the market to get more rigs because we're going to need them." Petrobras says it expects to spend $112.5 billion over the next five years to find and develop more oil and natural gas. ..." ------------------------------------------------------ The market seems to be positive on management's acquisition but it might take 8-18 months before the expected EPS are recognized by the market. EKS

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