Friday, May 2, 2008

Bookkeeping: Restarting Pride International (PDE) as Takeover Bait

I am restarting a position in an old name this AM, Pride International (PDE). This is a company which last year divested it's land drilling to focus on sea drilling [Aug 19: Some Updates on Pride International (PDE)]

Pride is an oil driller which is concentrating its business more and more on the most lucrative market, deep sea drilling. I have concentrated my holdings in this area because its the most insulated from ebb and flow of dayrate fluctuations (vs land drillers, or shallow sea drillers i.e. jackups)

Pride announced a sale of its land drilling assets in South America this week for $1 billion

Also George Soros, one of the most established and respected hedge fund managers (deep pocket investors) announced in a regulatory filing this week that its aquired a 1 million share stake in the company.

This cash infusion makes Pride a more pure play on deep sea ocean drilling, along with allowing it either (a) to develop a larger scale in deep sea drilling and/or (b) making it an even more attractive takeover candidate.

As you see, even then I thought it was a potential takeover candidate; and this was once the 2nd largest position in the fund [Sep 13: Kramer Agrees with me on Pride International... no, not Cramer... Kramer!]. However the stock was not performing and very lazy so by November I exited the position. I have not really been keeping up with the name but in my review of earnings tonight I came upon some interesting items... is that the smell of a potential buyout in the air? Sniff. Sniff.
  • Oilfield services group Seadrill wants talks with U.S. driller Pride International (PDE) on a strategic transaction and has no hostile aims towards it, Seadrill said on Wednesday.
  • On Tuesday, Houston-based Pride International said Oslo-listed Seadrill had taken a near 10 percent stake in it, and said it disclosed the holding against Seadrill's wishes in the interest of other shareholders.
While this is not a "secret", Seadrill which has a very experienced management team has taken a 9.9% stake in Pride - this spiked the stock from $40ish to mid $40s. Now after tonight's "disappointing earnings" the stock is back down to that gap in the chart... but earnings really are not the point. Commentary from Pride that they are "open to consolidation" set off my radar.
  • Oil and gas driller Pride International Inc (PDE) posted a more than 100 percent jump in first-quarter profit that beat market estimates, and said it was open to consolidation in view of speculations about its possible merger with Norway's Seadrill Ltd.
  • The company said it recognized the numerous benefits that could be achieved by further consolidation. We believe further consolidation will occur and we are always open to considering opportunities that would be compelling to our shareholders," a company official said in a conference call with analysts.
So unlike the Yahooligans we have a company that sounds very open to being acquired (at the right price - read higher). We might have a relatively easy takeover play. Now one way I'd play this in real life are say January 2009 40 and/or 45 calls, but since I'm playing a mutual fund manager on TV I just have to buy the shares. Which I intend to do this AM. Worst case scenario? I have another driller to replace the Diamond Offshore Drilling (DO) I sold off last week and replaced one company of similar ilk with another, with a potential icing on the cake of a buyout offer pending within say 6 months.

I'll update this entry with the purchase price and data of that sort - I'll probably begin with a 2% stake or so. EDIT: Bought 700 shares around $42 for a 2.5% stake. I see downside to about $38 where I'll add more.

Long Pride International in fund and personal account

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012