Contract land-drilling services provider Grey Wolf Inc., Houston, (Amex: GW) has turned down the unsolicited bid from Precision Drilling Trust, Calgary, (NYSE: PDS; Toronto: PD.UN) to acquire the company for some US$2 billion in cash and units, and to continue its efforts to merge with Basic Energy Services Inc., Midland, Texas (NYSE: BAS).


Precision offered to pay US$9 per Grey Wolf share in cash and trust units, representing a 21% premium over the average closing price of Grey Wolf stock over the 30-day period before the offer date.


Grey Wolf reported it analyzed the Precision proposal and concluded the offer was not superior to Grey Wolf’s pending merger with Basic Energy, which has not been amended and remains in effect. The merger will result in a combined value of $2.9 billion.
Under the merger agreement announced in April, Grey Wolf shareholders will receive $1.82 in cash and 0.25 share of the new Grey Wolf per current share. Basic Energy shareholders will receive $6.70 in cash and 0.9195 share per share. The total number of shares outstanding of the combined company will be approximately 85 million shares. Grey Wolf shareholders will own approximately 54% of the combined company and Basic Energy shareholders 46%.
Pro forma Grey Wolf will employ approximately 7,500 personnel and have 395 well-servicing and 130 drilling rigs and other oilfield service assets. Sales are estimated to be approximately $1,784 million of which 53% will be from contract drilling, 19% from well servicing, 15% from fluid services and 13% from completion and remedial services. EBITDA would be about $632 million.


Pro forma net debt as of Dec. 31, 2007, is approximately $960 million. The company intends to dedicate substantial cash flow to the repayment of debt.
The new Grey Wolf will be led by a combination of both companies’ management teams including Grey Wolf’s Tom Richards as chairman and David Crowley as president and chief operating officer, and Basic Energy’s Ken Huseman as chief executive and Alan Krenek as executive vice president and chief financial officer.
Standard & Poor’s Ratings Services placed the ratings on Grey Wolf and Basic Energy, including the BB- corporate credit ratings, on CreditWatch with positive implications. S&P analyst Jeffrey Morrison says, “Despite the additional debt in the capital structure, we expect pro forma leverage to remain relatively modest at below 2.0x on a debt-to-EBITDA basis. Further, the expected free cash flow profile of the combined entity could allow for some debt reduction over the intermediate term.”
Basic Energy operates in South Texas, the Texas Gulf Coast, the Ark-La-Tex region, North Texas, the Permian Basin of West Texas, the Midcontinent, Louisiana inland waters and the Rockies. Grey Wolf operates in South Texas, the Gulf Coast, the Ark-La-Tex, Mississippi/Alabama, Midcontinent and Rockies.

Comments