Basic Energy Services (NYSE:BAS)
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Merger Highlights:
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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
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The "new" Grey Wolf will be led by a combination of both companies'
seasoned management teams
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Tom Richards from Grey Wolf will be Chairman
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Ken Huseman from Basic Energy Services will be Chief Executive
Officer
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David Crowley from Grey Wolf will be President and Chief Operating
Officer
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Alan Krenek from Basic Energy Services will be Executive Vice
President and Chief Financial Officer
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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
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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.