4th time lucky as Precision Drilling acquires Grey Wolf

Fourth time's the charm for Canada's biggest oil and gas services firm.

After 2½ months of making successively sweeter takeover offers that were rebuffed one after the other, Calgary-based Precision Drilling Trust has finally reached a deal to buy Houston-based Grey Wolf Inc. for nearly $2 billion in cash and equity.

The two companies announced early Monday that their boards of directors had agreed to the deal.

Precision Drilling will pay $1.12 billion US in cash and 42 million of its units to acquire Grey Wolf, which owns 121 drilling rigs in the United States — 10 times more than Precision currently operates there.

Precision's units fell 99 cents or 4.5 per cent to $21.24 in Toronto trading on Monday. At that level, the deal is worth about $8.80 US per share of Grey Wolf, less than the $10 US a share of Precision's previous offer, but with a higher cash percentage.

Grey Wolf's shares are seen as less attractive now because natural gas prices have fallen nearly 40 per cent from their peak at the beginning of July.

"The merger with Grey Wolf is a perfect strategic fit for both companies," Precision Drilling chief executive Kevin Neveu said in a statement.

"Together we can deliver high value services that will provide significant value to our customers, employees and security-holders."

He said the merger will position Precision Drilling to be the premier provider of drilling and oil-rig services to the emerging unconventional oil and gas plays throughout North America.

Grey Wolf chief executive Thomas Richards said Precision's offer is in the best interests of Grey Wolf shareholders, customers and employees.

3 times spurned

Precision first bid for Grey Wolf on June 11 in an offer worth about $1.6 billion US, or $9 US a share, with one-third in cash and the rest in equity. Grey Wolf rejected the takeover attempt, saying a merger it had tentatively agreed to with Texas-based Basic Energy Services Inc. in April was worth more to its shareholders.

Precision sweetened the pot on June 17 to $9.30 US a share, with 40 per cent in cash. Grey Wolf rejected that advance, too, as well as a third overture on June 25 of $10 US a share and half of it in cash.

But then on July 15, Grey Wolf's shareholders voted down the planned merger with Basic Energy Services, opening the door for more wooing from Precision Drilling.

One analyst initially said he doubted Precision would try to take advantage of the situation by coming to Grey Wolf with a lower, fourth takeover offer.

"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," Tristone Capital analyst John Tasdemir said.

Grey Wolf shareholders will own about one-quarter of the merged entity. Three of the current Grey Wolf directors will be added to the Precision Drilling's board.

Grey Wolf's shares were down 11 cents US to $8.48 at the close of trading Monday on the AMEX exchange.