Third Avenue remains opposed to Bronco Drilling's merger with Allis-Chalmers

By Lisa Kerner

Charlotte, N.C., April 8 - Bronco Drilling Co. investor Third Avenue Management LLC once again voiced its opposition to the company's proposed acquisition by Allis-Chalmers Energy Inc. in an April 8 letter to Bronco Drilling chairman and chief executive officer Frank Harrison. The letter was included in a schedule 13D filing with the Securities and Exchange Commission.

Third Avenue, a 23.4% shareholder, called the $16.33-per-share offer price "woefully inadequate" and said it believes the merger undervalues Bronco's common stock.

The investor said it plans to vote its shares against the proposed merger based on the "flawed" sales process, improvements in the U.S. natural gas drilling industry and what would be a highly leveraged balance sheet of the proposed combined company.

According to Third Avenue, the implied proposed merger price of $16.33 per share values Bronco at 11.3 times 2007 earnings per share, 4.6 times 2007 EBITDA and only a slight premium to tangible book value.

"We are very wary of being shareholders in a post-merger combined highly leveraged company in a cyclical and capital intensive industry," Third Avenue said in the letter.

"We are long-term investors who invested in Bronco because it was a well-financed, well-managed company trading at a significant discount to intrinsic value," Third Avenue added.

The investor sent a similar letter to Harrison in January, expressing disappointment in the terms and structure of the company's proposed acquisition by Allis-Chalmers.

On Jan. 24, Allis-Chalmers agreed to acquire Bronco Drilling in a cash and stock deal valued at $437.8 million.

It was previously reported that the total merger consideration will consist of $280.0 million in cash and Allis-Chalmers common stock valued at $157.8 million.

The merger is slated to close in mid-2008.

Houston-based Allis-Chalmers provides services and equipment to oil and natural gas exploration and development companies.

Bronco Drilling, located in Edmond, Okla., provides contract land drilling and workover services to oil and gas exploration companies.

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