Patterson-UTI Energy and Seventy Seven Energy
On December 12, Patterson-UTI Energy (PTEN), one of the prominent contract drillers in North America, disclosed that it agreed to acquire Seventy Seven Energy (SVNT). Seventy Seven Energy also provides contract drilling, pressure pumping, and oilfield rental services to upstream energy companies in the US.
Under the agreement, Patterson-UTI Energy will acquire Seventy Seven Energy in an all-stock deal. In exchange for all of Seventy Seven Energy’s shares, Patterson-UTI Energy will issue ~49.6 million shares.
The proposed transaction includes Patterson-UTI Energy’s 49.6 million shares issued at $28.67. It also includes ~$336 million of Seventy Seven Energy’s net debt. Net debt is total debt less cash and warrant proceeds. The deal’s transaction value is estimated to be ~$1.76 billion. It translates into an exchange ratio of 1.77 shares of Patterson-UTI Energy for each share of Seventy Seven Energy. Following the completion of the merger transaction, Seventy Seven Energy’s current shareholders will own ~25% of the combined company.
The deal is expected to close in 1Q17. On November 30, Baker Hughes (BHI), CSL Capital Management, and West Street Energy Partners disclosed that they agreed to form a land-based pressure pumping company. Read more about the deal, read Baker Hughes Makes Another Deal: An OFS Newco Explained. West Street Energy Partners belongs to Goldman Sachs (GS). Patterson-UTI Energy makes up 5.1% of the VanEck Vectors Oil Services ETF (OIH).
Voting agreement with Seventy Seven’s shareholders
Patterson-UTI Energy entered into a voting agreement with BlueMountain Capital Management, Axar Capital Management, and Mudrick Capital Management. Together, the three asset management and investment management firms hold more than 50% ownership of Seventy Seven Energy.
Patterson-UTI Energy’s plan to repay debts
Patterson-UTI Energy plans to repay Seventy Seven Energy’s debts after the deal if the proposed merger goes through. Patterson-UTI Energy plans to use a $500 million revolving credit facility, which is lying undrawn. It also plans to use a $150 million senior unsecured bridge financing commitment.