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Koch Unit Taking Texas Propylene Producer Private in $2.1B Deal

Koch Industries Inc. unit Flint Hills Resources LLC is taking major propylene producer PetroLogistics LP and its general partner (PetroLogistics GP LLC) private in an all-cash deal worth about $2.1 billion.

Houston-based PetroLogistics has operations in the Houston Ship Channel area and owns/operates the only propane dehydrogenation (PDH) facility in the United States. Construction of the plant began in 2008 and was completed in 2010. The plant is among the largest of its kind and has an annual capacity of about 1.45 billion pounds of propylene, one of the basic petrochemical building blocks used in the manufacture of products such as paints, coatings, building materials, clothing, automotive parts, and packaging.

"PetroLogistics built this facility from the ground up. It is a world-class operation," said Flint Hills CEO Brad Razook. "Its capabilities are well aligned with our existing chemical and refining business." The facility was constructed using equity capital from Lindsay Goldberg and York Capital.

Cheap natural gas from U.S. shale plays is making propylene production in the United States more competitive with naphtha-based production overseas. About one month ago BASF Corp., the North American affiliate of BASF SE of Germany, said it is considering developing a world-scale methane-to-propylene complex on the U.S. Gulf Coast (see Daily GPIMay 2). A little more than a year ago Williams sanctioned the first PDH facility in Alberta (see Daily GPIMarch 19, 2013). Enterprise Products Partners LP said last year it had sold out capacity at its planned 1.65 billion pounds/year PDH facility, which is scheduled to begin operation on the Texas Gulf Coast during the third quarter of 2015 (see Shale DailyJan. 10, 2013).

Flint Hills is to acquire all of PetroLogistics' outstanding common units for $14.00 each, except for units owned by Lindsay Goldberg LLC, York Capital Management, PetroLogistics' executive chairman and its president and CEO, which would be acquired for $12.00/unit.

The deal is valued at $2.1 billion, including debt. The $14.00/unit price represents a more than 8% premium to the May 27 closing price. Closing is expected by year-end.

Refining, chemicals and biofuels company Flint Hills subsidiaries market products such as gasoline, diesel, jet fuel, ethanol, biodiesel, olefins, polymers and intermediate chemicals, as well as base oils and asphalt. The company has expanded its production capacity through acquisitions and capital projects worth more than $7.6 billion since 2002. The PetroLogistics acquisition is the largest in the company's history. Flint Hills has refineries in Minnesota and Texas, and its petrochemical business includes facilities in Illinois, Michigan and Texas. Parent Koch is one of the largest privately held companies in the United States.

The acquisition agreement has been approved by the boards of directors of both PetroLogistics GP and Flint Hills. Lindsay Goldberg, York Capital, PetroLogistics' executive chairman and its president and CEO, owning about 73% of the outstanding common units, have approved the transaction. The agreement includes a provision allowing PetroLogistics to shop for a better offer until July 6, which Flint Hills would have the opportunity to match. If the deal is scotched, Flint Hills would be in line to receive a $57 million termination fee.

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