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GAMCO (8.3% Holder) Opposes Dril-Quip (NYSE: DRQ)–Innovex Merger, Citing Governance Risks and Shareholder Value Erosion

Summary

GAMCO Asset Management, holding 8.3% of Dril-Quip (NYSE: DRQ), announced it will vote against the proposed merger with Innovex Downhole Solutions, citing poor governance, value destruction, and misaligned incentives. It highlighted Glass Lewis’ recommendation to also oppose the deal due to “problematic merger provisions” and “significant loss of value.” GAMCO criticized Dril-Quip’s late proxy amendment removing a key condition, calling it a desperate move, and noted governance risks remain. Since the merger announcement, Dril-Quip’s stock has fallen 32% versus a 6% decline in the oil services ETF, while executives stand to receive over $11 million in payouts. GAMCO argues the shares are deeply undervalued and that rejecting the merger is the best path to unlock long-term value.

Greenwich, CT - GAMCO Asset Management Inc. ("GAMCO"), an affiliate of GAMCO Investors, Inc. (OTCQX: GAMl), on behalf of its clients and certain of its affiliates owns approximately 2,872,654 shares ofDril Quip, Inc. (NYSE: DRQ) ("Dril-Quip"), representing 8.34% of the 34,452,230 outstanding shares. GAMCO intends to vote "Against" the proposed merger with Innovex Downhole Solutions ("Innovex").

On August 23, 2024, Glass, Lewis & Co. LLC ("Glass Lewis") published its report regarding Dril-Quip's merger with Innovex. Glass Lewis recommends that stockholders vote "Against" all proposals at Dril-Quip's Special Meeting of Stockholders scheduled for September 5, 2024. The report cites ''problematic merger provisions" and a "significant loss of value" amongst the key reasons for their opposition. GAMCO commends Glass Lewis for its diligent analysis and attention to these critical issues.

Late Proxy Amendment: Today, Dril-Quip amended its proxy statement to remove the requirement that the approval of the proposal to am.endDril-Quip's certificate of incorporation be passed as a condition to closing the merger. This material change was communicated just 11 days before shareholders are scheduled to vote on the future direction of Dril-Quip. GAMCO views the removal of this proposal as a desperate attempt by Dril-Quip and Innovex to take advantage of ISS's (Institutional Shareholder Services Inc.) mixed and confusing recommendation
to push the merger across the finish line. Further, although Dril-Quip has withdrawn certain problematic governance-related proposals, the fact that these provisions were initially included raises serious questions about the future governance of the merged entity. This casts a shadow over the merger, as the potential for future governance issues remains a significant risk, potentially leading to decisions that could negatively impact shareholder interests and long-term value.

Shareholder Value Erosion: Since the announcement of this merger, shareholder value has been significantly eroded, while current Dril-Quip management stands to exit with lucrative golden parachutes. When Dril-Quip announced its intention to merge with Innovex, the stock price was $23.73. As of August 26, 2024, Dril-Quip's stock price has declined by 32%, compared to a much smaller 6% decline in the VanEck Oil Services ETF (OIH) over the same period. This stark contrast underscores the negative market reaction to the proposed merger and the potential long-term consequences for shareholders. AmendmentNo. 2 to Form S-4 (filed on August 5, 2024) indicated that the merger ofDril-Quip with Innovex constitutes a change of control. As a result ofthis change of control, we estimate that Dril-Quip's CEO, Jeff Bird, and CFO, Kyle McClure, will receive compensation totaling
$8.1 million and $3.8 million, respectively.

Undervalued Shares: GAMCO believes that Dril-Quip shares are significantly undervalued and believes that rejecting this merger will allow Dril-Quip's true value to be realized, free from the constraints and risks posed by the proposed transaction.

Source: https://www.sec.gov/Archives/edgar/data/807249/000080724924000103/drq_10.pdf

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