Saturday, December 13, 2008

Polite journalists say Economou is ruffling feathers

George Economou, who controls Cardiff-Marine, is stripping DryShips of it's cash, and diluting shareholders by acquiring his assets at much inflated prices. I call it stealing; those in the press call it ruffling feathers. The latest from Llyod's list:

GEORGE Economou has never been one to shy away from controversy.

From the failed junk bond venture Alpha Shipping at the end of the 1990s, to the acquisition earlier this year of offshore drilling rig operator Ocean Rig by DryShips, then a pure bulk carrier company, Mr Economou has managed to ruffle feathers.

Eyebrows have now been raised by the Greek owner’s latest move, which sees $160m transferred from his public company, DryShips, to his private empire. The cash comprises $55m in forfeited deposits relating to DryShips’ cancellation of a $400m deal to acquire four new panamaxes from Mr Economou, and $105m for options to acquire the same ships for $160m en bloc by the end of next year.

DryShips made it clear that the agreement “was negotiated and approved by a committee consisting of the independent members of the company’s board of directors”.

Even so, this episode highlights the vexatious issues that can be triggered when public and private interests collide — and the perception is that the public company is taking more of the risks.

Critics point out that the $160m that is flowing into the private coffers probably more than covers the newbuilding cost of the four panamaxes. They argue that the terms of the cancellation are punitive and question the basis on which the option fee of $26.3m per vessel has been agreed.

Those taking a more positive view of the arrangement suggest that DryShips, where Mr Economou is chief executive and the major shareholder, has extricated itself from a hefty liability.

They point out that, in today’s market, the vessels are worth about $134m compared with the $400m purchase price DryShips agreed. Thus, a potential $266m decline in DryShips’ value has been replaced with a $160m cash outlay.

Whichever position you lean to, this is a messy state of affairs. It conveys the impression that shipping continues to be a maverick industry that plays by its own rules. A conflict of interest between the interests of public and private spheres can only serve to unsettle investors.

Ultimately, investors unhappy with the corporate governance of a public company can sell their shares. But in an industry trying to attract and retain global capital, such a showdown is best avoided.

George Economou struck this punitive deal to help offset the loss of Cardiff-Marine of his sale of a 207,784 dwt capesize built in 1984, that was just sold for $25 million. His previous buyer, who had offered $85 million, "renegotiated" the price.

So George Economou steals this money from shareholders instead.

And all the SEC does is send George letters (May 29) regarding DRYS' filings to ammend his filings to report the lease rent in dollars instead of euro's.

What is it with this SEC? Are they that incompetent that they can't see through scoundrels actions?

But if they can't find $50 billion, what's another theft of a billion or so by another Greek shipping tycoon who profts on the back of shareholders losses who has already sold his "locked up" stock in a Lichenstein account?


GlennC said...

In the previous deal, Dryships would have paid $400 million for the 4 ships. (Their own presentation showed that paying $100 million for a Panamax would have had a ROA of about 10%- not a great deal unless he was going to speculate in the spot game. But that's water under the bridge.)

In the new deal, Dryships is no longer obligated to complete the deal. Instead, DRYS would now only have to pay $320M instead of $400M. They also have the option of not purchasing the ships, which is worth something. So if they can buy new ships for less than $160M for 4 Panamaxes, then that would be a plus. At current prices that may be possible.

2- The real douche moves IMO was the 9 capesizes deal, which lets GE issue a huge amount of shares to himself while the share price was low. That is just unfair to existing shareholders in a big way.

The 50% dilution has a huge impact compared to GE's other moves that have much smaller impact (1% commissions charged to Cardiff, high executive compensation, buying Ocean Rig stock from Cardiff, etc.).

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