Standard & Poor’s places Nabors on Watch Negative as financing plans remain unknown
Bermuda-based onshore contract drilling firm Nabors Industries Inc. (NYSE: NBR) will acquire oilfield services company Superior Well Services Inc. (NASDAQ: SWSI) for in an all-cash transaction for $22.12 per common share, or $900 million.
Gene Isenberg, Nabors' chairman and CEO, noted that one of the motivators for the transaction was integrating more service offerings into the business, particularly internationally.
Additionally, “we expect to derive significant synergies in North America by integrating pumping services with our drilling and workover offerings. The Superior Well Services' broad US presence complements that of both our US land drilling and well-servicing operations and augments our expansion into areas such as the Marcellus shale region,” Isenberg continued in a statement.
Holders of approximately 34% of Superior Well Services' outstanding shares of common stock have agreed to tender their shares. Nabors expects the offer to close by the end of the third quarter. Following completion of the tender offer, Nabors will acquire any remaining shares of Superior Well Services through a second-step merger at the same price paid in the tender offer.
According to the Nabors press release, should the transaction not close “for certain reasons,” Superior Well Services will pay Nabors a $22.5 million termination fee and reimbursable expenses of up to $5 million.
Simmons & Company served as exclusive financial advisor to Superior in the transaction.
Following the merger announcement, Standard & Poor’s Ratings Service placed its 'BBB+' corporate credit and issue-level ratings on Nabors Industries on CreditWatch with negative implications.
The rating comes mainly as financing for the transaction has yet to be announced. The ratings firm said it is likely to “lower the ratings” if Nabors opted to fund the transaction with 100% debt.
"An all-debt financed transaction would be inconsistent with expectations for the current rating, and in our view make it difficult for Nabors to meet Standard & Poor's expected debt leverage of below 2.5x," said Standard & Poor's credit analyst Paul Harvey.
According to Standard & Poor’s, “Adjusted debt leverage to annualized first half EBITDA (including annualizing SWSI's first-quarter results ending March 31, 2010) ending June 30, 2010, would well exceed 3.5x. Additionally, Standard & Poor's believes the recent improvement in the onshore drilling and services markets could be unsustainable in 2011. We are concerned that drilling levels for natural gas and related pressure pumping services could fall in 2011 if natural gas prices remain soft and the pressure to drill wells to hold acreage eases.”
Shares of Nabors rose 37 cents to $18.35. Shares of Superior were up even higher - up $3.80 to $22.03.