Grey Wolf, Inc. and Basic Energy Services, Inc. Agree to Combine in ''Merger of Equals'' Transaction
April 21 2008 - 7:00AM
Business Wire
Merger Highlights: -- The merger creates a more diverse energy
services company with expanded growth opportunities through
enhanced scale, broader geographic reach, balanced commodity
exposure and expansion of service offerings � -- The "new" Grey
Wolf will be led by a combination of both companies' seasoned
management teams -- Tom Richards from Grey Wolf will be Chairman --
Ken Huseman from Basic Energy Services will be Chief Executive
Officer -- David Crowley from Grey Wolf will be President and Chief
Operating Officer -- Alan Krenek from Basic Energy Services will be
Executive Vice President and Chief Financial Officer � -- The
9-member Board of Directors will have representation approximately
proportionate to ownership with 5 directors nominated by Grey Wolf
and 4 nominated by Basic Energy Services � -- The shareholders of
both companies will receive a combination of shares in the new
company and cash Grey Wolf, Inc. ("Grey Wolf") (AMEX:GW) and Basic
Energy Services, Inc. ("Basic Energy Services") (NYSE:BAS) today
announced that their Boards of Directors have approved a definitive
agreement to combine the two businesses in a �merger of equals�.
Based upon closing prices for each company's common stock as of
April 18, 2008, the estimated enterprise value of the combined
company would be approximately $2.9 billion. The combined company
will be named Grey Wolf, Inc., have its corporate offices in
Houston, establish incorporation in the state of Delaware and trade
on the New York Stock Exchange under the symbol �GW�. Under the
terms of the agreement, Grey Wolf shareholders will receive $1.82
in cash and 0.2500 shares of new Grey Wolf for each share of Grey
Wolf they currently own. Based on this exchange ratio, each
stockholder of Grey Wolf will receive one share of new Grey Wolf
for each four shares of Grey Wolf in addition to the cash
consideration. Basic Energy Services shareholders will receive
$6.70 in cash and 0.9195 shares of new Grey Wolf for each share of
Basic Energy Services they currently own. The total number of
shares outstanding of the combined company, which is reflective of
the above exchange ratios applied to both companies� respective
current shares outstanding, will be approximately 85 million
shares. Pro forma net debt as of December 31, 2007 will be
approximately $960 million. The combined company intends to
dedicate a substantial amount of its free cash flow to the
repayment of the debt while at the same time fully funding and
implementing its significant, value-adding growth initiatives. The
greater financial strength of the combined company will enable it
to return approximately $600 million in cash to the combined
shareholder base while retaining financial flexibility to invest
for future growth. The financing will be provided by affiliates of
UBS Investment Bank and Goldman, Sachs & Co.. The cash is being
issued to the two sets of shareholders proportionate to pro forma
ownership of the combined company, which will be approximately 54%
owned by current Grey Wolf shareholders and 46% owned by current
Basic Energy Services shareholders. The combination will create an
organization with approximately 7,500 personnel, providing a broad
range of drilling and oilfield well services. The combined company
will have 395 well servicing and 130 drilling rigs as well as a
suite of other oilfield service assets, pro forma sales and EBITDA
of approximately $1,784 million and $632 million, respectively (for
the full year ending 12/31/07). Pro forma sales (for the full year
ending 12/31/07) would be approximately 53% from contract drilling,
19% from well servicing, 15% from fluid services and 13% from
completion and remedial services. Current Grey Wolf Chairman,
President and CEO, Thomas P. Richards, who will serve as Grey Wolf,
Inc.'s Chairman following the merger, said: "This is an exciting
opportunity for our shareholders, our customers and our people.
Grey Wolf�s premium land drilling rig fleet complements Basic
Energy Service�s premium land-based well servicing equipment. With
approximately 50% of Basic Energy Service�s business focused on oil
and approximately 95% of Grey Wolf�s business focused on natural
gas, this transaction results in a company with a diversified
revenue stream in terms of exposure to oil and gas opportunities,
involvement through the life of the well from drilling to
production to well abandonment and a very broad geographic
coverage, all of which is consistent with our stated strategic
goal. We are confident that our valued customers will respond
positively to this merger with the combined company�s enhanced
ability to satisfy their needs. Grey Wolf has an outstanding
management team, as well as operational and support staff, which
when combined with Basic Energy Services� organization, will
produce a best-in-class team.� Ken Huseman, who will serve as Chief
Executive Officer of Grey Wolf, Inc. after the merger, said, �This
combination achieves the goal of moving Basic Energy Services
forward in achieving a size which allows the combined company to
compete effectively for expansion opportunities anywhere in the
world while continuing to build upon the existing footprint of both
companies. The expanded operational capability of a more
diversified company will produce significant benefits for our
customers and provide substantial growth opportunities for our
people. In addition, the cash consideration allows us to provide
each companies� shareholders with a meaningful financial return
without unduly limiting the growth potential for the combined
entity. This is an ideal fit for the stakeholders in both
companies." Following the merger, in addition to the executive
officers listed above, Bob Proffit, current Senior Vice President,
Human Resources of Grey Wolf, will assume the role of Senior Vice
President, Administration at the combined company and Spencer
Armour, current Senior Vice President, Corporate Development of
Basic Energy Services, will remain in the same role at the combined
company. Operating level officers for both companies will continue
in their current roles. Timing The transaction is expected to close
in the third quarter of 2008. Completion of the transaction is
subject to shareholder approval at both Grey Wolf and Basic Energy
Services, receipt of financing proceeds, regulatory approvals and
other customary conditions. DLJ Merchant Banking Partners III, L.P.
and its affiliated funds, holders of approximately 44% of the
outstanding shares of Basic Energy Services, have entered into a
voting agreement agreeing to vote in favor of the transaction.
Advisors UBS Investment Bank is acting as exclusive financial
advisor to Grey Wolf and Goldman, Sachs & Co. is acting as
exclusive financial advisor to Basic Energy Services. Simmons &
Company International provided a fairness opinion to the Board of
Grey Wolf. Tudor, Pickering, Holt & Co. provided a fairness
opinion to the Board of Basic Energy Services. Porter & Hedges,
L.L.P. and Gardere Wynne & Sewell, LLP are acting as legal
counsel to Grey Wolf, and Davis Polk & Wardwell and Andrews
Kurth LLP are acting as legal counsel to Basic Energy Services.
Conference Call The senior management of Grey Wolf and Basic Energy
Services will host a conference call on Monday, April 21, 2008 at
11:00 a.m. Eastern Daylight Time. All individuals interested in
participating in the conference call should dial (800) 761-5415
domestically or (212) 231-2900 internationally 15 minutes prior to
the starting time. The reservation number is 21381162. A replay of
the call will be available for 48 hours after the call. The
telephone number for the replay of the call is (800) 633-8284
domestically or (402) 977-9140 internationally and the access code
is 21381162. About Basic Energy Services Founded in 1992, Basic
Energy Services has grown to be the nation�s third largest well
servicing rig contractor with more than 4,600 employees in 11
states. From drilling to final abandonment, Basic Energy Services
provides a range of well site services to America�s oil and gas
drilling and producing companies that support the entire life cycle
of a well. Headquartered in Midland, Texas, Basic Energy Services
operates in the major oil and gas producing markets in the US
including South Texas, the Texas Gulf Coast, the Ark-La-Tex region,
North Texas, the Permian Basin of West Texas, the Mid Continent,
Louisiana Inland Waters and the Rocky Mountains. For more
information about Basic Energy Services, go to
http://www.basicenergyservices.com. About Grey Wolf Grey Wolf is
the fourth largest provider of contract land drilling services in
the United States. It serves major and independent oil and gas
companies with a premium fleet of 121 rigs. Located in the nation�s
most productive natural gas regions, it operates in South Texas,
the Gulf Coast, the Ark-La-Tex, Mississippi/Alabama, Mid Continent
and Rocky Mountain areas on both a daywork and turnkey basis. Grey
Wolf also has two rigs deployed in Mexico. Approximately 95% of the
wells drilled by Grey Wolf are targeted to natural gas. For more
information about Grey Wolf, go to http://www.gwdrilling.com.
Forward Looking Statements and Additional Information This document
may include statements herein that are �forward-looking statements�
as defined by the Securities and Exchange Commission (the �SEC�).
All statements, other than statements of historical fact, included
herein that address activities, events or developments that Grey
Wolf or Basic Energy Services expect, believe or anticipate will or
may occur in the future are forward-looking statements. These
forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially, including
required approvals by stockholders and regulatory agencies, the
possibility that the anticipated benefits from the proposed mergers
cannot be fully realized, the possibility that costs or
difficulties related to integration of the two companies will be
greater than expected, the impact of competition and other risk
factors included in the reports filed with the SEC by Grey Wolf and
Basic Energy Services. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of their dates. Except as required by law, neither Grey Wolf nor
Basic Energy Services intends to update or revise its
forward-looking statements, whether as a result of new information,
future events or otherwise. Additional Information and Where to
Find It In connection with the proposed mergers, a registration
statement of Horsepower Holdings, Inc. (�Holdings�), which will
include proxy statements of Basic Energy Services and Grey Wolf and
other materials, will be filed with the Securities and Exchange
Commission. INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY
READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS
AND THESE OTHER MATERIALS REGARDING THE PROPOSED TRANSACTION WHEN
THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT BASIC ENERGY SERVICES, GREY WOLF, HOLDINGS AND
THE PROPOSED TRANSACTION. Investors and security holders may obtain
a free copy of the registration statement and the proxy
statement/prospectus when they are available and other documents
containing information about Basic Energy Services and Grey Wolf,
without charge, at the SEC�s web site at www.sec.gov, Basic Energy
Service�s web site at www.basicenergyservices.com, and Grey Wolf�s
web site at www.gwdrilling.com. Copies of the registration
statement and the proxy statement/prospectus and the SEC filings
that will be incorporated by reference therein may also be obtained
for free by directing a request to either Investor Relations, Basic
Energy Services, Inc., (432) 620-5510 or to Investor Relations,
Grey Wolf, Inc., (713) 435-6100. Participants in the Solicitation
Basic Energy Services and Grey Wolf and their respective directors,
officers and certain other members of management may be deemed to
be participants in the solicitation of proxies from their
respective stockholders in respect of the mergers. Information
about these persons can be found in Grey Wolf�s proxy statement
relating to its 2008 annual meetings of stockholders as filed with
the SEC on April 8, 2008. Information concerning beneficial
ownership of Basic Energy Services stock by its directors and
certain of its executive officers is included in its proxy
statement dated April 5, 2007 and subsequent statements of changes
in beneficial ownership on file with the SEC. Additional
information about the interests of such persons in the solicitation
of proxies in respect of the merger will be included in the
registration statement and the joint proxy statement/prospectus to
be filed with the SEC in connection with the proposed transaction.
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