Wednesday, July 30, 2008

Large Bronco Drilling (BRNC) Holder Wexford Capital Reiterates Opposition To Merger, Says Co Worth $25-$30

In an amended 13D filing on Bronco Drilling Co. Inc. (Nasdaq: BRNC), Wexford Capital, a 12.85% shareholder, disclosed a letter to the Board of Directors, reiterating their opposition to the merger with Allis-Chalmers Energy Inc. (NYSE: ALY) - saying it significantly undervalues the company.

Wexford Capital noted that it has extensive familiarity with Bronco Drilling, founding the company in 2001 and taking it public in 2005. They said, "As a substantial, knowledgeable Bronco shareholder, we have analyzed the proposed Merger and believe that it is not in the best interests of Bronco or its shareholders." The firm plans to vote against the deal.

Specificaly, Wexford said Bronco should be worth $25-$30 per share, well above the $17 per share offered in the Allis-Chalmers deal. Wexford noted that the land rig industry is much stronger since the transaction was announced. Wexford also said it expects 2009 EBITDA to approach $150M, well above the consensus estimate of $110M. Wexford also cited a comparable transaction between Schlumberger (NYSE: SLB) and Saxon Energy Services which implied a value of 7x EBITDA, versus a 3.5x-4.7x multiple for the Bronco Drilling/Allis-Chalmers deal.

Wexford Capital said they do not oppose a merger transaction involving Bronco, but they are opposed to the Allis-Chalmers deal as it significantly undervalues Bronco.

Link to Wexford letter to Bronco and the presentation

Wexford Capital LCC is an SEC registered investment advisor with over $7 billion of assets under management. Wexford manages four hedge funds with $4.5 billion in capital and has $ billion in private equity investments.

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