Precision Drilling Trust, Canada's largest oilfield-services provider, is acquiring Grey Wolf Inc. for $2.02 billion to enhance its presence in the larger and stronger US market. While $1.12 billion of the outlay will be in cash, Precision will also issue 42 million units valued at $896.7 million, based on Friday's closing stock price.

Stockholders of Grey Wolf, based in Houston, will get $5 and 0.1883 trust unit per share, the companies said today in a statement. That's $9.02 a share as of 22 August, a premium of 4.8 per cent and less than an earlier June bid of $10 a share, which Grey Wolf spurned.

Grey Wolf shareholders will own 25 per cent of the combined company and three of its directors will join the Precision board at closing. A vote of Grey Wolf shareholders on the deal will be held by year-end, the companies said.

Calgary-based Precision said that the deal would be "highly accretive" to its cash flow and that Grey Wolf shareholders will receive proxy statements by the end of the third quarter. They didn't say when the deal is expected to close.

"The combination of Grey Wolf's deep-drilling capabilities and Precision's high-performance systems and technology provides a foundation for immediate international expansion to pursue global oil-drilling opportunities," the companies said in a joint statement.

Acquisitions of oilfield-services providers and drillers accelerated this year as record oil prices raised demand for rigs and support equipment. (See: Buyout firm Candover and oil service company Halliburton in billion dollar bidding war for Expro International)

The deal will allow Precision to expand further outside Canada, where it operates about one-quarter of the country's rigs, by adding Grey Wolf's activities in South Texas, the Gulf Coast, Mississippi/Alabama, the Mid-continent, the Rocky Mountains and Mexico.

The company will gain 121 rigs, mostly drilling for natural gas in the US, where those in operation have risen 13 per cent this year to a record 1,998. Canadian rigs have fallen 13 per cent since a high of 457 were operating in February.

Precision said the deal will establish it as one of the largest land drillers in North America with a combined fleet of 371 drilling rigs, as well as providing 229 service rigs, camp and catering, procurement, rig manufacturing and repair, and wastewater treatment. While the company currently has about 5,550 employees, Grey Wolf employs 2,800.

Grey Wolf rejected three previous bids from Calgary-based Precision in favor of its April agreement to acquire Basic Energy Services Inc., a Midland, Texas-based oilfield contractor, for $1.4 billion. Shareholders voted that deal down in July. Precision CEO Kevin Neveu said then he would immediately revive his offer to buy Grey Wolf.

Since then, natural-gas prices have tumbled, dragging down the value of Precision's trust units by 12 per cent. Grey Wolf has dropped 11 per cent from a high of $9.50 a share on 23 June.

Deutsche Bank AG and Royal Bank of Canada are advising Precision Drilling on the transaction. Its lawyers are Mayer Brown LLP, Bennett Jones LLP, and Felesky Flynn LLP. UBS AG is advising Grey Wolf, as did law firms Porter & Hedges LLP, Blake, Cassels & Graydon LLP, and Gardere Wynne Sewell LLP.

The announcement was made before the start of regular trading in North American markets. Precision Drilling dropped 3.3 per cent to C$21.50 in pre-market trading in Toronto. Grey Wolf was little changed at $8.60 on the New York Stock Exchange.