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Superior Shareholders Must Drill Down for Deal Value (Update 1)

Updated with analyst interview and oil prices starting in 10th paragraph.

NEW ORLEANS ( TheStreet) -- Superior Energy Services' (SPN - Get Report) $2.6 billion cash and stock offer to purchase Complete Production Services (CPX) for a 60% premium killed the acquirer's stock on Monday as investors fretted over possible dilution and a hefty premium paid.

Superior Energy shares closed down more than 13% at $3.78 with volume reaching 22.75 million, well beyond the issue's trailing three-month daily average of 1.04 million.

But investors aren't making the correct call, says Trey Stolz, a managing director of research at Iberia Capital Partners. Stolz argues that a panicked market may be overlooking the fact that though the deal will double Superior's outstanding shares, it will also more than double Superior's earnings streams.

"If you just add the net income of the two companies and just divide it from the new shares, its 17% accretive for Superior shareholders if you look at 2012 projections," said Stolz in a phone interview with TheStreet.

On Monday the onshore and offshore oilfield service company agreed to buy Complete for roughly $2.6 billion, valuing the shale drilling rig and services provider at $32.90 a share and 60% premium to Complete's share prices prior to the announcement.

Superior is offering a .945 portion of its own stock and $7.00 in cash for each Complete share, taking a 52% stake in the company. Superior will be issuing new shares for the stock piece of the deal, according to a press release. The math works out that Superior will be adding roughly 75 million shares to make the purchase, doubling its outstanding shares to roughly 154 million.

When the markets opened Monday morning, the selloff of Superior's shares was a resounding negative opinion on the deal considering its potentially dilutive effects and price.

Investors fleeing the deal may be overlooking some important facts, including the profit and revenue that Complete brings to the table. In the most recent quarter, Complete had revenue of $551.9 million and net income of $54.5 million, both larger than Superior's revenue of $510.8 million and earnings of $48.1 million.

Potentially overdone concerns of dilution aside, 60% is a hefty premium, "I think anytime you see a transaction at a 61% type of premium there is going to be an initial reaction in the market like this," said Stolz. In the press release announcing the deal, Superior noted the $32.90 a share price tag is a 30% premium over the average price of Complete Production Services' shares in the last two months. What wasn't said is that Complete shares have fallen over 40% from their July highs.
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