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Dry bulk sector merger will see DryShips acquire OceanFreight

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economoubellGeorge Economou led DryShips Inc. (NASDAQ: DRYS) has entered into a definitive agreement to acquire the outstanding shares of OceanFreight Inc. (NASDAQ: OCNFD) for consideration per share of $19.85, consisting of $11.25 in cash and 0.52326 of a share of common stock of Ocean Rig UDW Inc., which is 78 percent owned by DryShips. The Ocean Rig shares received by the OceanFreight shareholders will be from currently outstanding shares held by DryShips. Under the terms of the transaction, the Ocean Rig shares will be listed on the Nasdaq Global Select Market upon the closing of the merger.

Based on the July 25, 2011 closing price of 89.00 NOK ($16.44) for the shares of Ocean Rig on the Norwegian OTC, the transaction consideration reflects a total equity value for OceanFreight of approximately $118 million and a total enterprise value of approximately $239 million, including the assumption of debt.

The transaction has been approved by the Boards of Directors of DryShips and OceanFreight, by the Audit Committee of the Board of Directors of DryShips, which negotiated the proposed transaction on behalf of DryShips, and by a Special Committee of independent directors of OceanFreight established to negotiate the proposed transaction on behalf of OceanFreight.

The transaction will allow DryShips to acquire high-quality, modern drybulk vessels with attractive long-term charters. OceanFreight owns a fleet of six vessels, including four Capesize and two Panamax vessels with a weighted average age of six years and combined deadweight tonnage of 859,622 tons and has contracted to purchase five newbuilding Very Large Ore Carriers (VLOC) with a combined deadweight tonnage of approximately one million tons scheduled to be delivered in 2012 and 2013. DryShips will also benefit by assuming OceanFreight’s attractively-priced credit facilities. Those facilities have an aggregate principal amount of $142.8 million, bear interest at Libor plus 250 basis points and have a final maturity of October 2015.

George Economou, Chairman and CEO of DryShips, commented: “We are pleased to announce the merger agreement with OceanFreight. This transaction provides DryShips with a unique opportunity to consolidate the fragmented dry bulk sector by acquiring a high quality, modern fleet with long-term charters to solid charterers. As previously announced, we have a fleet renewal plan that is being implemented by selling our older vessels. Given current freight market conditions, our preference is to acquire younger vessels with medium to long-term charters with moderate financing in place. The merger with OceanFreight offers us a unique opportunity to renew DryShips fleet, increase our presence in the Capesize/VLOC sector and augment our fixed revenues, and to do so at a low point in the cycle at what we consider to be an attractive valuation. We will achieve this through minimal use of cash and no issuance of additional DryShips equity while utilizing a mere 2.3% of our ownership stake in Ocean Rig in a manner that will also increase its public float. We will continue to monitor developments in the shipping industry selectively as the weak freight market may offer us further strategic acquisition opportunities. This merger is a testament to the strong position of DryShips and our belief in the long-term prospects of the drybulk freight market. Pro forma for the merger, Dryships will own a fleet of eighteen Capesize vessels, the largest among publicly traded shipping companies.”

Professor John Liveris, Chairman of the Board of Directors and Special Committee of OceanFreight, commented: “OceanFreight’s merger with DryShips enables our shareholders to realize the inherent value created from the significant repositioning of the company’s fleet and employment profile that our management team implemented over the past two years. This value unfortunately was not reflected in our stock trading price. Additionally, we are pleased to provide our shareholders with the opportunity to participate in Ocean Rig, a growing company in the ultra deep water drilling sector. We believe that OceanFreight’s four-year journey in the public markets has reached a worthy homeport.”

Simultaneously with the execution of the definitive merger agreement, DryShips, entities controlled by Mr. Anthony Kandylidis and OceanFreight, entered into a separate purchase agreement. Under this agreement, DryShips will acquire from the entities controlled by Mr. Kandylidis all their OceanFreight shares, representing a majority of the outstanding shares of OceanFreight, for the same consideration per share that the OceanFreight stockholders will receive in the merger. This acquisition is scheduled to close four weeks from the execution of the merger agreement, subject to satisfaction of certain conditions.

DryShips intends to vote the OceanFreight shares so acquired in favor of the merger, which requires approval by a majority vote. The Ocean Rig shares to be paid by DryShips to the entities controlled by Mr. Kandylidis will be subject to a 6-month lock-up.

Evercore Partners is serving as financial advisors to DryShips in connection with the transaction and Fried, Frank, Harris, Shriver & Jacobson LLP is serving as DryShips’ legal counsel. Fearnley Fonds ASA is serving as financial advisors to the Special Committee of the OceanFreight Board of Directors and Seward & Kissel LLP is serving as the Committee’s legal counsel.

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