Ausdrill blames volatility on hedge fund

Ausdrill Ltd has blamed a fall in the company's share price on hedge fund selling after comments from suitor Macmahon Holdings Ltd that its takeover bid was unlikely to succeed.

Ausdrill said that it believes selling from hedge funds accounted for the "majority" of the "large number" of shares traded in the belief that Macmahon's offer would fail.

The drilling contractor's share price sank 20 per cent from a closing price of $2.50 on Tuesday to close at $2.00 yesterday.

Ausdrill chairman Terry O'Connor said the impact of hedge fund selling on the share price was likely to be "short term" and that the price did not reflect the group's excellent outlook and earnings.

However, Macmahon today warned that Ausdrill managing director Ron Sayers would not be able to provide any further "buying support" to the share price after increasing his stake in the company.

Mr Sayers again has lifted his stake in the company, purchasing 8.3 million shares from institutions at $2.50 each, or $20.75 million in total to increase his interest to 19.95 per cent.

Macmahon said it was highly likely that Ausdrill shares would trade substantially lower if the bid lapses, "especially given that Mr Sayers has reached the 20 per cent shareholding threshold and is unable to provide further buying support".

Shares in Ausdrill gained 15 cents to close at $2.15, while Macmahon put on 3.5 cents to $1.835.

Macmahon is offering 1.65 of its own shares for every Ausdrill share, valuing the company at $521 million or $3.03 per share.

The company is targeting Ausdrill to gain a greater foothold in Africa and create a diversified mining contracting and civil construction company with a market capitalisation of about $1.4 billion.

The drilling contractor said the directors, together with shareholders who have stated they would not accept the takeover offer account for 33.2 per cent of Ausdrill's shares.

"We look forward to continuing to grow Ausdrill as an independent company for the benefit of our shareholders," Mr Sayers said in a statement.

Macmahon's takeover offer closes on September 29.