Superior Drilling Products Announces Preliminary Results for Election of Form of Merger Consideration

Rhea-AI Summary

Superior Drilling Products (NYSE American: SDPI) announced preliminary results for the election of merger consideration in its pending acquisition by Drilling Tools International (NASDAQ: DTI). Key points:

• SDPI shareholders approved the merger on July 29, 2024
• Shareholders could elect to receive $1.00 in cash or 0.313 DTI shares per SDPI share
• 80.5% of shares elected stock consideration, 5.3% elected cash, and 14.2% made no election
• The maximum share amount was exceeded, so stock electors will receive partial cash consideration
• Final results and allocation will be calculated before closing

The merger aims to combine SDPI's innovative drilling tool technology with DTI's oilfield services expertise.

Positive

• Merger approved by SDPI shareholders, indicating support for the transaction
• High percentage (80.5%) of shareholders elected stock consideration, suggesting confidence in combined entity
• Merger combines SDPI's innovative drilling technology with DTI's oilfield services expertise

Negative

• Stock electors will receive partial cash consideration due to exceeding maximum share amount
• Potential dilution for existing DTI shareholders due to issuance of new shares for the merger

Financial Analyst

The preliminary results of Superior Drilling Products' (SDPI) merger consideration election reveal significant investor preferences and potential implications for the company's acquisition by Drilling Tools International (DTI). Approximately 80.5% of SDPI shareholders elected to receive stock consideration, indicating strong confidence in the combined entity's future prospects. This preference for equity over cash suggests that investors see long-term value in the merger.

However, the high demand for stock consideration exceeded the Maximum Share Amount set in the merger agreement. This oversubscription means that some shareholders who elected for stock will receive a portion of their consideration in cash. This outcome could potentially impact the post-merger ownership structure and dilution levels.

The relatively low cash election (5.3%) and no-election (14.2%) percentages further underscore shareholders' bullish outlook on the combined company. From a financial perspective, this preference for stock could provide the merged entity with a stronger cash position post-transaction, potentially facilitating future growth initiatives or debt reduction.

Investors should closely monitor the final certified results and the exact proration calculations, as these will determine the ultimate mix of cash and stock in the merger consideration. This mix could influence the company's capital structure, liquidity and shareholder composition moving forward.

Legal Expert

The merger between Superior Drilling Products (SDPI) and Drilling Tools International (DTI) presents several noteworthy legal aspects. The complex election mechanism and proration procedures outlined in the merger agreement demonstrate a carefully structured transaction designed to balance shareholder preferences with predetermined limits on cash and stock consideration.

The use of a two-step merger structure - first merging DTI's subsidiary into SDPI, then merging the surviving entity into another DTI subsidiary - is a common approach in acquisitions. This structure can offer tax and operational benefits, but also requires meticulous legal planning to ensure compliance with corporate law and securities regulations.

The preliminary election results triggering the proration mechanism highlight the importance of clear, unambiguous merger agreement terms. The complex calculations required to determine final consideration allocation underscore the need for precise legal drafting to avoid potential disputes or litigation.

Importantly, the company's disclosure emphasizes the preliminary nature of the results and directs shareholders to the detailed information in the proxy statement/prospectus. This approach aligns with SEC requirements for transparent and comprehensive disclosure in merger transactions, helping to mitigate legal risks associated with shareholder communications.

As the transaction progresses, legal teams will need to ensure full compliance with all regulatory requirements, including final SEC filings and any necessary antitrust clearances, to successfully close the merger.

VERNAL, Utah--(BUSINESS WIRE)-- Superior Drilling Products, Inc. (NYSE American: SDPI) (“SDPI”) announced today the preliminary results of the elections made by holders of SDPI common stock regarding the form of merger consideration to be received in connection with the pending acquisition of SDPI (the “Transaction”) of Drilling Tools International Corporation (NASDAQ: DTI) (“DTI”).

On July 29, 2024, the shareholders of SDPI approved the transactions contemplated by the Agreement and Plan of Merger entered into on March 6, 2024 among DTI, SDPI, DTI Merger Sub I, Inc., a Delaware corporation and direct wholly owned subsidiary of DTI (“Merger Sub I”), and DTI Merger Sub II, LLC, a Delaware limited liability company and direct wholly owned subsidiary of DTI (“Merger Sub II”), pursuant to which, among other things, and upon the terms and subject to the conditions set forth in the Merger Agreement, (a) Merger Sub I will merge with and into SDPI (the “First Merger”), with SDPI surviving as a wholly owned subsidiary of DTI, and (b) upon the effective time of the First Merger (the “First Effective Time”), SDPI, as the surviving corporation of the First Merger, will merge with and into Merger Sub II (the “Second Merger,” and, together with the First Merger, the “Merger”), with Merger Sub II surviving as a wholly owned subsidiary of DTI.

Pursuant to the Merger Agreement, at the First Effective Time, each share of SDPI common stock, par value $0.001 per share (the “SDPI Common Stock”), issued and outstanding immediately prior to the First Effective Time was converted into the right to receive, without interest, at the election of the holder thereof, subject to the proration provisions of the Merger Agreement, (a) for each share of SDPI Common Stock with respect to which an election to receive cash had been made and not revoked or lost (a “Cash Election Share”), $1.00 in cash (the “Cash Election Consideration”), (b) for each share of SDPI Common Stock with respect to which an election to receive stock had been made and not revoked or lost (each, a “Stock Election Share”), 0.313 validly issued, fully paid, and non-assessable shares of common stock, par value $0.0001 per share (the “DTI Common Stock”), of DTI (the “Stock Election Consideration,” and together with the Cash Election Consideration, the “Merger Consideration”), and (c) for each share of SDPI Common Stock with respect to which no election to receive Cash Election Consideration or the Stock Election Consideration had been made (a “No Election Share”), the Cash Election Consideration or the Stock Election Consideration, as provided in the proration mechanics described below.

Pursuant to the terms of the Merger Agreement, (a) if the product obtained by multiplying the aggregate number of Stock Election Shares by 0.313 (the “Stock Election Multiplier” and such product, the “Aggregate Stock Elections”) exceeded 4,845,240 (the “Maximum Share Amount”), (i) all Cash Election Shares and No Election Shares were to be exchanged for the Cash Election Consideration, and (ii) a portion of the Stock Election Shares of each holder thereof was to be exchanged for the Stock Election Consideration, with such portion being equal to the product obtained by multiplying the number of such holder’s Stock Election Shares by a fraction, the numerator of which is the Maximum Share Amount and the denominator of which is the Aggregate Stock Elections, with the remaining portion of such holder’s Stock Election Shares being exchanged for the Cash Election Consideration, (b) if the Aggregate Stock Elections was less than 4,112,752 (the “Minimum Share Amount” and the difference between the Minimum Share Amount and the Aggregate Stock Elections, the “Shortfall Amount”), then (i) first, if the Shortfall Amount is smaller than or equal to the number of No Election Shares multiplied by 0.313 (the “No Election Share Amount”), then: (A) the Cash Election Shares were to be received in cash as they have elected and will not be affected by the adjustment; and (B) the No Election Shares held by shareholders were to be exchanged for the Stock Election Consideration equal to the product of (1) the number of No Election Shares of such holder and (2) a fraction, the numerator of which is the Shortfall Amount and the denominator of which is the No Election Share Amount, with the remaining portion of such holder’s No Election Shares receiving the Cash Election Consideration, and (ii) second, if the Shortfall Amount exceeded the No Election Share Amount, then (Y) all No Election Shares were to be exchanged for the Stock Election Consideration and (Z) the Cash Election Shares held by stockholders were to be exchanged for the Stock Election Consideration, with such portion being equal to the product of (x) the number of Cash Election Shares of such holder and (y) a fraction, the numerator of which is the amount by which the Shortfall Amount exceeded the No Election Share Amount, and the denominator of which is the product of the aggregate number of Cash Election Shares and the Stock Election Multiplier, with the remaining portion of such holder’s Cash Election Shares receiving the Cash Election Consideration, and (iii) if the Aggregate Stock Elections is (x) equal to the Maximum Share Amount, (y) less than the Maximum Share Amount but greater than the Minimum Share Amount, or (z) equal to the Minimum Share Amount, then (1) all Cash Election Shares and No Election Shares were to be exchanged for the Cash Election Consideration and (2) all Stock Election Shares will be exchanged for the Stock Election Consideration.

Based on available information as of the election deadline of 5:00 p.m., New York time, on July 29, 2024, the preliminary merger consideration election results were:

• Holders of approximately 80.5% of the outstanding shares of SDPI Common Stock, or 24,464,146 shares, elected to receive the Stock Election Consideration.
• Holders of approximately 5.3% of the outstanding shares of SDPI Common Stock, or 1,605,736 shares, elected to receive the Cash Election Consideration.
• Holders of approximately 14.2% of the outstanding shares of SDPI Common Stock, or 4,321,362 shares, made no election, and as a result, will receive the Cash Election Consideration.

Because the Maximum Share Amount was exceeded, holders of SDPI Common Stock who elected to receive all Stock Election Consideration will receive a portion of their Merger Consideration in Cash Election Consideration.

The foregoing results are preliminary only, and final certified results are not expected to be available until shortly before closing. After the final results of the election process are determined, the final merger consideration, and the allocation of the merger consideration, will be calculated in accordance with the terms of the Merger Agreement. No fractional shares of DTI Common Stock will be issued in the merger, and holders of SDPI Common Stock will receive cash in lieu of any fractional shares of DTI Common Stock.

A more detailed description of the merger consideration and the proration procedures applicable to elections is contained in the definitive proxy statement/prospectus was sent to stockholders of SDPI on or about July 2, 2024. SDPI stockholders should carefully read the definitive proxy statement/prospectus in its entirety.

About Drilling Tools International Corporation

Drilling Tools International is a Houston, Texas based leading oilfield services company that manufactures and rents downhole drilling tools used in horizontal and directional drilling of oil and natural gas wells. With roots dating back to 1984, DTI operates from 16 service and support centers across North America and maintains 7 international service and support centers across Europe and the Middle East; and maintain a large fleet of rental equipment, with over 65,000 tools for use in horizontal and directional drilling, as well as surface control equipment. To learn more about DTI, visit www.drillingtools.com.

About Superior Drilling Products, Inc.

SDPI is an innovative, cutting-edge drilling tool technology company providing cost saving solutions that drive production efficiencies for the oil and natural gas drilling industry. The Company designs, manufactures, repairs, and sells drilling tools. SDPI drilling solutions include the patented Drill-N-Ream^® well bore conditioning tool and the patented Strider^™ oscillation system technology. In addition, SDP is a manufacturer and refurbisher of PDC (polycrystalline diamond compact) drill bits for leading oil field service companies. SDPI operates a state-of-the-art drilling tool fabrication facility, where it manufactures its solutions for the drilling industry, as well as customers’ custom products. Additional information about SDPI can be found at: www.sdpi.com.

Additional Information for Superior Drilling Products, Inc. Shareholders and Where to Find It

This press release relates to a proposed acquisition of Superior Drilling Products, Inc. by Drilling Tools International Corporation. In connection with the transaction, DTI filed a registration statement on Form S-4 which includes a document that serves as a prospectus of DTI and a proxy statement of SDPI (the “proxy statement/prospectus”), and each party has filed and will file other relevant documents regarding the transaction with the Securities and Exchange Commission (the “SEC”). INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY, INCLUDING THE SCHEDULE 13E-3, BECAUSE THEY CONTAIN IMPORTANT INFORMATION. A definitive proxy statement/prospectus was sent to stockholders of SDPI on or about July 2, 2024. Investors and security holders can obtain free copies of the registration statement and the proxy statement/prospectus and other relevant documents filed with the SEC through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by DTI are available free of charge on the DTI website at www.drillingtools.com or by contacting DTI by email at InvestorRelations@drillingtools.com or by mail at 3710 Briarpark Drive, Suite 150, Houston, TX 77042. Copies of the documents filed with the SEC by SDPI are available free of charge on the SDPI website at https://sdpi.com or by contacting SDPI by email at dpawlowski@keiadvisors.com or by mail at 1583 S. 1700 E., Vernal, UT 84078.

Participants in the Solicitation

DTI and SDPI and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the SDPI stockholders in connection with the proposed transaction. Information about the directors and executive officers of DTI is set forth in its Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 28, 2024, its Proxy Statement for its 2024 Annual Meeting Stockholders, which was filed with the SEC on April 2, 2024 and in other documents filed with the SEC by DTI and its executive officers and directors. Information about the directors and executive officers of SDPI is set forth in its Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 7, 2024, its Proxy Statement for its 2023 Annual Meeting Stockholders, which was filed with the SEC on June 30, 2023, and in other documents filed with the SEC by SDPI and its executive officers and directors.

These documents can be obtained free of charge from the sources indicated above. Additional information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the proxy statement/prospectus and Schedule 13e-3 and other relevant materials in connection with the transaction which were filed with the SEC. Information concerning the interests of the participants in the solicitation, which may, in some cases, be different than those of SDPI’s shareholders generally, is set forth in the prospectus/proxy statement relating to the proposed transaction and the Schedule 13e-3 . Investors should read the proxy statement/prospectus and Schedule 13e-3 carefully before making any voting or investment decisions.

Forward-Looking Statements

This press release may include, and oral statements made from time to time by representatives of DTI and SDPI may include, “forward-looking statements.” Statements regarding the business combination and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this press release are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward looking. These forward-looking statements include, but are not limited to, statements regarding the proposed transaction, including any statements regarding the expected timetable for completing the proposed transaction, benefits of the proposed transaction, and DTI and its management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward looking statements in this press release may include, for example, statements about: (1) the demand for DTI’s products and services, which is influenced by the general level activity in the oil and gas industry; (2) DTI’s ability to retain its customers, particularly those that contribute to a large portion of its revenue; (3) DTI’s ability to remain the sole North American distributor of the Drill-N-Ream; (4) DTI’s ability to employ and retain a sufficient number of skilled and qualified workers, including its key personnel; (5) DTI’s ability to market its services in a competitive industry; (9) DTI’s ability to execute, integrate and realize the benefits of acquisitions, and manage the resulting growth of its business; (6) potential liability for claims arising from damage or harm caused by the operation of DTI’s tools, or otherwise arising from the dangerous activities that are inherent in the oil and gas industry; (7) DTI’s ability to obtain additional capital; (8) potential political, regulatory, economic and social disruptions in the countries in which DTI conducts business, including changes in tax laws or tax rates; (9) DTI’s dependence on its information technology systems, in particular Customer Order Management Portal and Support System, for the efficient operation of DTI’s business; (10) DTI’s ability to comply with applicable laws, regulations and rules, including those related to the environment, greenhouse gases and climate change; (11) DTI’s ability to maintain an effective system of disclosure controls and internal control over financial reporting; (12) the potential for volatility in the market price of DTI’s common stock; (13) the impact of increased legal, accounting, administrative and other costs incurred as a public company, including the impact of possible shareholder litigation; (14) the potential for issuance of additional shares of DTI’s common stock or other equity securities; (15) DTI’s ability to maintain the listing of its common stock on Nasdaq; (16) the conditions to the completion of the proposed transaction, including obtaining SDPI shareholder approval and the regulatory approvals required for the transaction on the anticipated schedule or at all, (17) financing for the transaction may not be obtained by DTI on favorable terms or at all, (18) the closing of the proposed transaction may not occur or could be delayed, either as a result of litigation related to the transaction or otherwise or result in significant costs of defense, indemnification, and liability, (19) the risk that the cost savings and any other synergies from the SDPI transaction may not be fully realized by DTI or may take longer or cost more to be realized than expected, including that the SDPI transaction may not be accretive to DTI within the expected timeframe or the extent anticipated, (20) completing the SDPI transaction may distract DTI and SDPI management from other important matters, (21) the possibility that any or all of the various conditions to the consummation of the proposed transaction may not be satisfied or waived, including the failure to receive any required regulatory approvals from any applicable governmental entities (or any conditions, limitations or restrictions placed on such approvals), (22) the possibility that competing offers or acquisition proposals for SDPI will be made, (23) the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive transaction agreement relating to the proposed transaction, including in circumstances, which would require a party to pay a termination fee, (24) the effect of the announcement or pendency of the proposed transaction on SDPI’s ability to attract, motivate or retain key executives and employees, its ability to maintain relationships with its customers, suppliers and other business counterparties, or its operating results and business generally, (25) risks related to the proposed transaction diverting management’s attention from SDPI’s or DTI’s ongoing business operations, (26) the amount of costs, fees and expenses related to the proposed transaction, (26) the risk that SDPI’s or DTI’s stock price may decline significantly if the proposed transaction is not consummated, (27) the risk of shareholder litigation in connection with the proposed transaction, including resulting expense or delay, and (28) other risks and uncertainties separately provided to you and indicated from time to time described in filings and potential filings by DTI and SDP with the SEC.

You should carefully consider the risks and uncertainties described in the information presented in DTI’s Annual Report on Form 10-K for the year ended December 31, 2023 filed March 28, 2024 and the Quarterly Report on Form 10-Q for the period ended March 31, 2024 filed May 16, 2024 and SDPI’s Annual Report on Form 10-K for the year ended December 31 2023 filed March 15, 2024 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and filed May 15, 2024. Such forward-looking statements are based on the beliefs of management of DTI and SDPI, respectively, as well as assumptions made by, and information currently available to DTI’s and SDPI’s management, respectively. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed above and in the prospectus/proxy statement and other filings by DTI or SDPI with the SEC. All subsequent written or oral forward-looking statements attributable to DTI, SDPI or persons acting on their respective behalf are qualified in their entirety by this paragraph. Forward-looking statements are subject to numerous conditions, many of which are beyond the control of each of DTI and SDPI, including those set forth or to be set forth in the Risk Factors section of the prospectus/proxy statement, and described in the other filings by DTI and SDPI with the SEC. Neither DTI nor SDPI undertake any obligation to update these statements for revisions or changes after the date of this release, except as required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240730721591/en/

DTI Investor Relations

Ken Dennard / Rick Black

InvestorRelations@drillingtools.com



SDPI Investor Relations

Deborah K. Pawlowski / Craig P. Mychajluk

Kei Advisors LLC

716-843-3908 / 716-843-3832

dpawlowski@keiadvisors.com / cmychajluk@keiadvisors.com

Source: Superior Drilling Products, Inc.

FAQ

What are the terms of the merger between Superior Drilling Products (SDPI) and Drilling Tools International (DTI)?

SDPI shareholders can receive either $1.00 in cash or 0.313 DTI shares for each SDPI share, subject to proration. The merger was approved on July 29, 2024, with 80.5% of shares electing stock consideration.

How will the merger consideration be allocated for SDPI shareholders?

Due to the maximum share amount being exceeded, shareholders who elected stock consideration will receive a portion in cash. The final allocation will be calculated before the merger closing based on the proration procedures outlined in the merger agreement.

What is the strategic rationale for the merger between SDPI and DTI?

The merger aims to combine SDPI's innovative drilling tool technology and manufacturing capabilities with DTI's oilfield services expertise and extensive rental equipment fleet, potentially creating a stronger, more competitive entity in the oil and gas drilling industry.

When will the final results of the SDPI-DTI merger consideration election be available?

The final certified results of the merger consideration election are expected to be available shortly before the closing of the merger. The announced results are preliminary and subject to change.