Onshore contract driller Patterson-UTI Energy Inc.PTEN and Seventy Seven Energy Inc. SVNT recently reported that they have entered into a definitive merger agreement. Under this deal, Patterson-UTI will acquire the latter in an all-stock deal worth $1.76 billion, including debt.
Per the terms of the transaction, Patterson-UTI will purchase all of the issued and outstanding shares of common stock of Seventy Seven Energy in exchange of approximately 49.6 million shares of common stock of Patterson-UTI. Shareholders of Seventy Seven Energy will receive 1.7725 shares of Patterson-UTI for each share held. Moreover, the arrangement includes approximately $336 million of Seventy Seven Energy's debt net of cash and warrant proceeds.
The transaction is subject to customary regulatory approvals, stockholder approval of both companies and other customary closing conditions. It is expected to close late in the first quarter of 2017.
Following the closing of the transaction, Patterson-UTI will have more than 1.5 million hydraulic fracturing horsepower. Moreover, synergy of as much as $50 million is expected to be achieved from the deal, which will be substantially accretive to the company's cash flow.
Patterson-UTI intends to repay the debt of Seventy Seven Energy using a combination of cash, undrawn borrowing under its revolving credit facility worth $500 million and senior unsecured bridge financing worth $150 million arranged by the company in this regard.
Headquartered in Houston, TX, Patterson-UTI Energy is one of the largest North American land drilling contractor with a large, high-quality fleet of drilling rigs. The company's technologically advanced 'Apex' rigs are the key to its success.
Year to date, the Zacks categorized Oil/Gas Drilling Industry has registered an impressive growth of 26.2%. However, the Patterson stock has outperformed the industry by gaining 90.1%.
Patterson currently carries a Zacks Rank #3 (Hold), which implies that the company will perform in line with the broader U.S. equity market over the next one to three months.
Some better-ranked players from the broader energy sector include Braskem S.A. BAK and McDermott International Inc. MDR . Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
In the last four quarters, Braskem posted an average positive earnings surprise of 105.5%.
In the last four quarters, McDermott posted an average positive earnings surprise of 250.00%.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportMCDERMOTT INTL (MDR): Free Stock Analysis ReportBRASKEM SA (BAK): Free Stock Analysis ReportPATTERSON-UTI (PTEN): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research