When it comes to Bronco Drilling
It doesn't possess as premium a fleet as Helmerich & Payne
On the day of the merger announcement, Allis-Chalmers' shares closed nearly 5% higher. Since acquiring companies' shares nearly always fall on merger announcements, it's not a big stretch to identify this as a low-ball offer. You can't blame these guys for trying to pick up Bronco at around four times EBITDA.
What's appalling is that the latter company's board accepted.
A glance at share ownership figures tells me that insiders hold less than 0.05% of Bronco's outstanding shares, plus some options that they've yet to exercise. Top executives' change in control agreements stipulate that they collect severance pay in the amount of three times base salary plus a bonus, so I can see why the deal might look attractive to them personally.
Fool-minded fund managers Third Avenue, on the other hand, hold more than 20% of Bronco shares, and their message in a recent SEC filing couldn't be more clear: Buck this deal.