Raymond James Analyst: Will Grey Wolf Accept Precision Drilling's Bid?

The decision by Grey Wolf Inc. (GW) investors to reject the company's merger agreement with Basic Energy Services Inc. (BAS) may have re-opened the door to a possible takeover of Grey Wolf by Precision Drilling Trust (PDS), but for Raymond James analyst Andrew Bradford, it's still way too early to call Precision's $10 offer a done deal.

In a note to clients, Mr. Bradford said:

We are going to resist the urge to upgrade Precision at this point, though we are turning increasingly positive on this stock.

We are maintaining our C$25 price target, though we note that if the Grey Wolf acquisition were fait‐accompli $10, we would probably value Precision at somewhere between C$26.50 ‐ C$27.50 as a function of the [10% accretion to Precision’s cash flow per unit.]

Mr. Bradford maintained his "market perform" rating, saying he is holding back from recommending investors buy Precision because he thinks it likely that Grey Wolf will hold out for a higher price, making a deal less accretive than presently.

He also noted that should Precision and Grey Wolf not come to terms, Precision's other possible acquisition charges would be smaller and also less accretive.