Pride International Inc. (NYSE: PDE) and Marine Drilling Cos. Inc. (NYSE: MRL) will merge in an all-stock transaction that would create an offshore drilling contractor with a solid presence in the hot jackup drilling market. But Pride's stock traded as much as 19% lower on the news as the market registered its disappointment that Pride wasn't swallowed by a larger company instead. "[Pride's stock price] has been built up during the [preceding] week because everyone thought they were going to be a takeover target. I think the [merger] news brought it back down," said one Wall Street oil analyst. "And also from a Pride shareholder perspective, it's not an overly attractive deal. At best, it's earnings-neutral for next year. From a Marine shareholder standpoint, it looks a lot better. You're getting a good 15 to 20 cents in accretion next year and you're getting deepwater assets that you didn't have before." Based upon the companies' preannouncement stock prices-$32.65 for Pride and $27.72 for Marine Drilling-the total enterprise value of the combined company would be approximately $6.2 billion, consisting of $4.5 billion in equity and $1.7 billion of debt. The new company, which will retain the Pride name and stock symbol, will be the industry's third largest offshore drilling contractor in terms of enterprise value. Common stockholders of each company will receive one share in the newly formed company per share of Pride or Marine Drilling that they currently own. The transaction will be accounted for as a pooling-of-interest. The companies expect it to be accretive to earnings per share in the first year after closing in late 2001. The combined company will have an offshore fleet of 77 rigs, including two drill ships, 11 semisubmersibles, 35 jackups, and 29 tender-assist, barge and platform rigs. Six of these rigs are newly constructed and capable of operating in 5,000 feet or more water. The combined company will also operate a fleet of 246 land rigs in the international markets. "This transaction combines Pride's operating leverage with Marine Drilling's financial strength to create an extraordinary company with size, geographic scope and balance sheet flexibility," said Paul A. Bragg, Pride president and chief executive officer who will retain these titles in the new company. Joe Agular, who covers drilling contractors for Johnson Rice & Co., said one of the biggest benefits of the deal likely will be a boost to Pride's credit ratings, thanks to Marine Drilling's strong financial position. Prior to the deal, Pride's debt-to-capitalization ratio was 64%. Postmerger, it will be around 52%. "I think it's a pretty tight fit," he said. Agular is retaining his Buy for both drilling contractors. -Jodi Wetuski

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