Grey Wolf shareholders Vote Down Basic Energy Deal

Shareholders of oil driller Grey Wolf Inc voted down a proposed purchase of Basic Energy Services Inc Tuesday, opening the door for a possible takeover of Grey Wolf by Precision Drilling Trust instead.

After the vote, the chief executive of Canada-based Precision Drilling said it would resubmit to Grey Wolf a $10-a-share takeover bid after he gets official notice that the Basic deal has been canceled.

Grey Wolf said its board would review alternatives for enhancing shareholder value, including the sale of the company, acquisitions or other combinations and staying independent. It has engaged UBS Investment Bank to advise the company during the review.

The company agreed to buy Basic Energy in April in a deal that would have combined Grey Wolf's land-drilling rig fleet with Basic's land-based well-servicing equipment.

But Precision Drilling approached Grey Wolf in June with its own unsolicited takeover offer, originally offering about $9 a share for the company. Grey Wolf rejected that bid and two more, as Precision Drilling eventually reached a price of $10 a share ? or $2.19bn ? for the company.

The market for oilfield services companies has soared along with crude oil prices as energy companies have ramped up their efforts to pull oil and gas from the ground.

Grey Wolf CEO Tom Richards told reporters he was disappointed that shareholders had rejected the Basic deal.

"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," Richards said after shareholders voted at a special meeting in Houston.

The companies said in a statement that the merger had been terminated by both companies. They did not disclose how many shareholders voted against the deal.

Precision Drilling CEO Kevin Neveu said he hoped to proceed soon with talks with Grey Wolf.

"I know the Grey Wolf management team quite well and some of the board members and I expect we'll get a fair hearing. I think they'll have more flexibility after they've terminated their agreement than they had before," he told Reuters.

He said the process might be less public than Precision's previous overtures for the company.

Grey Wolf said in a statement there was no assurance its review would end in any specific transaction. It said it would take a charge of $17m, or five cents a share, in the third quarter as a result of the failed deal.

The company said it paid a $5m termination fee to Basic because the deal fell apart. Should Grey Wolf be acquired by a third party within the next year, it could owe Basic an additional $25m, Grey Wolf said in a filing.

Basic Energy's shareholders had voted in favor of the combination with Grey Wolf.

Basic Energy CEO Kenneth Huseman said after the meeting he would continue to expand his company through small acquisitions.

"We always have deals in the pipeline," he said.

Shares of Grey Wolf closed up 31 cents, or 3.5%, at $9.23 on the American Stock Exchange. Basic Energy dropped 94 cents, or 3.1%, to $29.40 on the New York Stock Exchange and Precision Drilling fell 72 Canadian cents, or 2.8%, to C$24.60 on the Toronto Stock Exchange.

By Anna Driver, additional reporting by Scott Haggett in Calgary, writing by Michael Erman, editing by Mark Porter and Braden Reddall, Reuters