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Sure, Brian.

Dawson Geophysical (DWSN) bought competitor TGC Industries (TGE) this week. Both provide onshore seismic exploration services for nat gas and oil in various locations of North America. Here's a link on the deal:

And here are some comments by Fool analyst, Stan Huber on the deal:

I listened to the merger conference call and have a few comments to put the deal into perspective. It’s an all-stock deal that amounts to paying about $8 per share for the outstanding shares of TGE. After closing, the number of outstanding shares of DWSN stock will increase from 8M to 11.7M. Existing DWSN shareholders will own 68% of the combined company and TGE shareholders will own the remaining 32%.

They expect the deal to close in late Q2 or early Q3 of calendar year 2011. The terms of the deal will remain intact if the average price for Dawson stock in the ten days prior to closing is between $32.54 and $52.54. If the average falls outside of this range, they will attempt to negotiate a new exchange agreement. If they cannot come to agreement, they can cancel the offer. The Boards of both companies have approved it and it also needs a majority approval of DWSN shareholders and 80% approval of TGE shareholders. The insiders at TGE have pledged almost 30% of outstanding shares in support of the merger.

TGC Industries (NASDAQ: TGE) is comprised of two subsidiaries – Tidelands Geophysical and Eagle Canada. Tidelands operates primarily in East Texas, Louisiana, and the Mid-Continent region. Eagle operates in Canada. They have little customer overlap and believe the companies have strong cultural and operational similarities. The TGE management will be retained and DWSN doesn’t see many costs that will be taken out because each company runs a tight ship from an operating expense standpoint. The synergies will result from having much more flexibility in moving crews and equipment around to where it can be utilized best, minimizing downtime. Moving the Eagle equipment south when the thaw begins in Canada as Robert pointed out is one such example.

TGE runs with equipment similar to what Dawson uses. They own 70K channels worth of gear utilizing a mix of ARAM and OYO GSR equipment just like Dawson. They also have 69 vibrator trucks and dynamite energy source capabilities. The combined company will have 200K+ channels of recording equipment and more than 200 vibrator units. They stated that their order book will support 21 crews well into 2011. The numbers given on the conference call vary somewhat from what Doodle has spelled out, so I’m not sure how to reconcile. Jumper said that TGE has seven crews and that Dawson is expanding to 14 crews itself. It is becoming apparent that channel count is a better measure of size and revenue than crew count because they will often start with a big crew and then split it into two crews as the work warrants.

Looking at the latest TGE balance sheet for the period ending Sept. 30, 2010, there is $19.6M in cash and combined short term and long term debt of $12M. This would indicate that TGE was at that time in a net cash position. I haven’t searched for the terms of debt and have no idea whether Dawson will pay the debt off or keep a slight amount of leverage in the combined corporate capital structure. The data I quoted above is also five months old.

It appears that the primary advantage of the combination is simply one of additional scale that improves the ability to cover a wide geographic footprint and nimbly move bodies and equipment to where it can best be utilized given local weather and permitting conditions. They remain committed to serving all current customers from large projects to very small shoots. I noticed somewhere in my readings that TGE owns a data bank of gravity data and magnetic data from oil and natural gas producing areas in the US. I’ll leave it to Robert to explain whether that is a valuable asset or not.

It looks like a solid deal at a reasonable price (given the all stock nature). It should be very straightforward to integrate since they won’t be closing facilities or eliminating G&A staff to any significant degree. It also gives Dawson an entry into the Canadian market. Jumper said that in the past they had been asked many times if they would do work in Canada and now they can answer in the affirmative. If the seismic acquisition market is rebounding like it appears, this is a good time to make this acquisition. The act of agreeing to a stock deal and TGE’s management signing onto a three-year employment contract is tacitly stating that these folks believe the combined DWSN’s stock has appreciation potential.

The gist of what I'd want to ask Mr. Pickens is whether he sees this as a sign that the industry is strongly back into it's 'up' cycle? What his thoughts are in general on the future of North American exploration services - strong, increasing demand? Just steady and cyclical? etc. I think both companies have moved more into oil, from mostly Nat Gas. Does he see this trend continuing, or does he think his efforts to increase Nat Gas usage in this country will really come to fruition in our (his) lifetime?

Interesting guy. You're lucky to have his ear. Thanks for including us!

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