UPDATE 2-DryShips picks stake in Norway's Ocean Rig; shares fall

(Adds analyst comments, updates share movement)

Dec 17 (Reuters) - Greek dry-bulk carrier DryShips Inc (DRYS.O: Quote, Profile, Research, Stock Buzz) 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.

DEEPWATER DRILLING

Ocean Rig owns and operates two ultra deepwater rigs, with depth capacity of between 7,500 feet and 10,000 feet.