(Adds analyst comments, updates share movement)
Dec 17 Greek dry-bulk carrier DryShips Inc (DRYS.O) said it agreed to acquire about 30.4 percent stake in Ocean Rig ASA OCRA.OL, a Norway-based offshore drilling contractor, for $405 million, to capitalize on strong demand for ultra deepwater drilling rigs.
The company's entry into the deep water drilling industry is a notable departure from marine transportation and is a result of its view that significant shareholder value can be garnered through this transaction, Cantor Fitzgerald analyst Natasha Boyden wrote in a note to clients.
Shares of DryShips were down more than 14 percent at $71.80 in afternoon trade, making them one of the top percentage losers on the Nasdaq.
Boyden said the deal, which will slightly add to the company's earnings, is not an indicator that the dry bulk industry itself is beginning to soften. She raised her 2008 earnings estimate for DryShips to $18.52 from $17.65 a share.
In a statement, DryShips said it plans to finance the investment with about $162 million in cash and $243 million in debt.
The analyst cut her price target on DryShips to $121 from $133 due to higher debt assumption, but maintained her "buy" rating on the stock.
Ocean Rig owns and operates two ultra deepwater rigs, with depth capacity of between 7,500 feet and 10,000 feet.
Demand for ultra deepwater rigs is expected to be strong for the next five to 10 years as exploration and production of fossil fuels moves further offshore into deeper waters, DryShips Chief Executive George Economou said in a statement.
The shortage of ultra deepwater rigs would result in higher day rates, and Ocean Rig's Eirik Raude would be the first deepwater drilling rig available for charter when its current contract expires in July 2008, the company said.
Seperately, George Economou has acquired about 4.4 percent of Ocean Rig's share capital, the company said. (Reporting by Hezron Selvi, Sakthi Prasad in Bangalore; Editing by Mathew Veedon, Deepak Kannan)