September 8, 2011 / 9:09 PM / 6 years ago

UPDATE 2-Major Drilling to buy rival Bradley Group

* Deal expands Major Drilling’s presence in Eastern Canada

* To finance deal via C$70 million equity offering (Adds details on deal, equity financing)

By Euan Rocha

TORONTO, Sept 8 (Reuters) - Major Drilling MDI.TO said on Thursday it will acquire privately held Bradley Group for C$80 million ($80.1 million), a move that allows it to expand its drilling services business in northern Quebec and northern Ontario.

Moncton, New Brunswick-based Major Drilling, one of the world’s largest providers of drilling services to mining companies, has seen demand for its services surge this year as precious-metal and base-metal prices have risen sharply.

The company said the acquisition gives it the opportunity to expand its presence in high growth areas, while increasing its rig count by more than 20 percent to nearly 700 rigs.

Perhaps more significantly, the deal also increases the size of Major Drilling’s workforce by nearly 20 percent to more than 5,200 employees. Major Drilling and its peers have often argued that the biggest constraint they face given the surge in demand for drilling services is a shortage of trained and experienced drill operators. [ID:nN28250440] [ID:nN22148818]

With about 70 percent of Bradley’s revenue generated by gold properties, the deal will also boost Major Drilling’s presence in the gold-mining industry at a time when the price of gold is at record highs.

EQUITY OFFERING

Major Drilling said it plans to finance the deal with a C$70 million equity offering. It has entered into an agreement with a syndicate of underwriters led by TD Securities to sell, on a bought deal basis, subscription receipts for its common shares.

In a bought deal an underwriter, or syndicate buys shares from an issuer before selling them on to the public, thereby reducing the risk and uncertainty for the issuer.

The company will issue 5.9 million subscription receipts at a price of C$11.90 each, a 3.6 percent discount to its closing share price of C$12.35 on Thursday.

If the acquisition is completed on, or before Dec. 15, the subscription receipts will be exchanged on a one-for-one basis for common shares of Major Drilling, the company said.

Major Drilling, which has about C$70 million in existing credit facilities, said its lenders have agreed to increase the overall size of its credit facilities to about C$100 million.

The expanded credit facilities will give Major Drilling the required flexibility to take advantage of growth opportunities, as they may arise, the company said.

Major Drilling said the acquisition and the expanded credit facility agreements will close by Nov. 30. The acquisition has been approved by Major Drilling’s board, but it remains subject to customary closing conditions, the company said.

$1=$0.99 Canadian Reporting by Euan Rocha; editing by Peter Galloway

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