Oil Man Takes Roy Disney's Advice on Making Share Sellers WrongBy
Patterson-UTI Energy Inc.’s acquisition spurred stock decline
Chairman expects value boost after deal closes on Thursday
You wouldn’t think an oilman would draw inspiration from Roy Disney, whose uncle turned a cartoon mouse into a U.S. icon, when things get tough.
But that’s exactly what Mark Siegel, the chairman of Patterson-UTI Energy Inc., said he did on Dec. 13, when his company’s value plunged the day after it announced a $1.4 billion deal for rival Seventy Seven Energy Inc. Siegel was working as a lawyer for the Disneys in October 1987, when a stock crash wiped out a chunk of the family’s wealth, he said Monday in an interview at Bloomberg offices in Houston.
When he expressed his sympathy, Roy Disney, Walt’s nephew, answered with a quick reply: "I wasn’t planning on selling it today," Siegel recalled.
Now Siegel, whose stock is down double digits since the deal was announced, is convinced the investors that stayed put will soon see the value of his company’s "transformative" decision to buy Seventy Seven Energy rise after the deal closes on Thursday.
The companies will mesh each of their drilling and fracking businesses to become the second-largest U.S. rig contractor and among the top five pressure pumpers, Siegel said. Shares of Patterson fell 6.9 percent on the first trading day after the deal was made public, and has lost about 17 percent since, compared to a 14 percent drop for the Philadelphia Oil Services Index.
Still, Siegel remains confident: "I think this is very short term," he said.
The stock, which has 19 buy recommendations from analysts, 10 to hold and two to sell, closed 0.6 percent lower at $23.66 on Monday.
Message to Sellers
After issuing additional stock to generate cash for paying off Seventy Seven’s debt, Patterson likely wouldn’t buy back shares right now to take advantage of a perceived lower stock price, Siegel said. But he’s got a message for sellers of his stock: "I’d like to always make you wrong if you sell it."
The market concern is that many of Seventy Seven’s investors will sell once combined, creating a ceiling on the stock’s growth for a month or two, Luke Lemoine, an analyst at Capital One Securities in New Orleans, said in a telephone interview Monday.
"The deal looks better than people originally thought it did," according to Lemoine. The new Patterson should boost cost synergies to about $75 million, he said, up from the company’s guidance of at least $50 million.
The oil industry has doubled the number of working rigs in the U.S. from a low of 316 in May. And despite the growth, shale drillers could still have a year’s worth of rigs they could put to work, Siegel said earlier Monday in an interview on Bloomberg Television.
Disney and Oil
Siegel, a Los Angeles-based investor with a law degree, got his first taste in the oil services world more than two decades ago when the law firm he worked for urged the Disney family to diversify its exposure to higher oil prices in the 1980s by owning a piece of the industry.
The Disney family bought a small stake in the predecessor company to Weatherford International Plc, the world’s fourth-largest oil services company, and put Siegel on the board as its representative.
"That’s how I learned the business," Siegel said. "I’m perhaps one of the more unusual characters in this business that’s filled with unusual characters."
— With assistance by Alix Steel