Basic Energy scraps takeover of Grey Wolf, opening door for Precision Drilling

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This article was published 15/07/2008 (6322 days ago), so information in it may no longer be current.

CALGARY – The door is open for Precision Drilling Trust (TSX:PD.UN) to make a new takeover offer for Houston-based Grey Wolf Inc. (AMEX:GW), whose shareholders rejected plans for a merger with well services firm Basic Energy Services Inc. (NYSE:BAS).

“We’re disappointed,” Grey Wolf CEO Tom Richards said after the meeting. “We put together a transaction that we clearly believed was in the best interest of Grey Wolf shareholders. Nothing has occurred that is going to change that opinion.”

Grey Wolf and Basic scrapped the transaction after it was voted down by shareholders at a special meeting in Houston on Tuesday.

Now Calgary-based Precision and Grey Wolf will likely resume talks on the Canadian company’s US$10 a share bid, which values the Houston company at about US$1.79 billion.

Last week, Precision said it would “immediately” re-approach Grey Wolf’s board with its US$10 offer if the merger with Basic fell through.

“Precision continues to firmly believe that the combination of Grey Wolf and Precision represents a highly compelling long-term value creation strategy for both Precision and Grey Wolf securityholders,” the trust stated last Wednesday.

Precision CEO Kevin Neveu was not immediately available for comment Tuesday.

Tristone Capital analyst John Tasdemir, one of many to assert from the beginning that Precision’s bid was superior to the Basic one, said he hopes now Grey Wolf will be open to negotiating a merger with the Calgary company.

Tasdemir said he doubted Precision would try to take advantage of the situation by coming to Grey Wolf with a lower takeover offer at this point, since it had behaved very “gentlemanly” throughout its pursuit.

“They certainly don’t want to burn any bridges with Grey Wolf. They certainly know that there’s some key guys there that are very important to the Grey Wolf company that they’d want to keep around,” he said.

“I think everybody’s probably treading pretty lightly today.”

Grey Wolf’s board repeatedly rejected overtures from Precision Drilling in favour of the deal with Basic Energy, saying Precision Drilling’s proposal undervalued the company and didn’t offer a significant premium to shareholders.

Grey Wolf had also expressed doubts over the strength of Canada’s drilling industry and Precision’s ability to weather new rules that will tax income trusts like corporations as of 2011.

Precision has been courting Grey Wolf as a means to expand its business into the United States, a market it left in 2005 as part of a plan to convert into an income trust.

Last year, Precision increased its rig fleet in the United States from one to 12 and said the pace of this U.S. growth was expected to rise with a continued mix of redeployments from Canada and new rig construction.

Grey Wolf has a fleet of 121 drilling rigs.

In Tuesday trading on the New York Stock Exchange, Basic Energy shares fell 94 cents, or three per cent, to $29.40. Meanwhile, Grey Wolf shares soared more than four per cent to $9.29 on the American Stock Exchange.

Precision Drilling shares fell 72 cents, or nearly three per cent, to C$24.60 on the Toronto Stock Exchange.