Not so long ago, Bronco Drilling
Well, we're seeing a similar situation today, with the announced merger of Grey Wolf
As we've seen with the breakup of Rowan
Another cost of these synergies is higher indebtedness. Grey Wolf runs a pretty lean operation and has little to no net debt (debt minus cash on hand). But Basic Energy carries quite a bit of debt. What's more, as part of the merger proposal, the companies will be giving $600 million in cash to shareholders of both companies, and that payout will have to be financed with additional borrowings. Transocean
Now, part of the appeal of these mergers is that size provides the capability to expand internationally. It's hard to blame these smaller outfits for wanting to take on Nabors Industries
Scaling up internationally while paying down a significant debt load is going to be a challenge for the "new" Grey Wolf. There's never been much visibility in the contract-drilling market, so the combined companies will need a fair bit of luck to pull off the transformation. If shareholders approve the deal, that is.