UPDATE 1-Proxy firm urges Grey Wolf holders to reject deal

(Adds details from opinion, removes reference to WSJ)

PHILADELPHIA, July 7 (Reuters) - A prominent proxy advisory firm urged shareholders of drilling services provider Grey Wolf Inc GW.A to reject a proposed merger with Basic Energy Services Inc (BAS.N).

RiskMetrics Group Inc, in an opinion issued on July 3, questioned the rationale of diversification behind the deal.

"We however note that domestic diversification, in and of itself, is also not usually a sufficient reason to justify a merger since shareholders can easily do this on their own," said RiskMetrics, formerly known as Institutional Shareholder Services.

The proposed link-up also would not likely yield significant synergies, RiskMetrics said, because Grey Wolf is a pure-play driller while Basic Energy is a multiple-service provider.

RiskMetrics also raised questions about potential conflicts of interest among some Grey Wolf board members who voted for the deal with Basic Energy.

Neither Grey Wolf nor Basic Energy could immediately be reached for comment.

The two companies plan to merge into a new entity that would be majority owned by Grey Wolf shareholders. Under the deal, Grey Wolf investors would exchange each of their shares for $1.82 cash and 0.25 share of the new company. Each Basic Energy share would be exchanged for $6.70 cash and 0.9195 share of the new company.

Last month, Grey Wolf rejected a sweetened takeover offer of $1.78 billion, or $10 per share, from Precision Drilling Trust (PD_u.TO), saying the price undervalued Grey Wolf and that the planned link-up with Basic Energy offered a better value for shareholders. (Reporting by Matt Daily and Jessica Hall; Editing by Clarence Fernandez and John Wallace) (For more M&A news and our DealZone blog, go to here)