Antero Resources Corp. (AR) announced a transaction Tuesday to simplify its corporate structure and eliminate its midstream master limited partnership (MLP) that would also help to address overall valuation.
The company said Antero Midstream GP LP (AMGP) would acquire all the outstanding common units of Antero Midstream Partners LP (AM) in a stock and cash transaction. After the deal closes, AMGP would be converted into a corporation and the combined entity would be renamed Antero Midstream Corp.
In simplifying the midstream structure, Antero said it would receive 158.4 million shares in the new corporation and at least $300 million in cash, with each depending on the cash election of other current AM unitholders, which are entitled to elect all cash, all stock or a combination of both. Antero would then own 31% of the new corporation and be its largest shareholder, assuming it does not elect to receive additional cash.
Proceeds would be dumped into a $600 million share repurchase program that would also be funded with free cash flow over the next two years. The program, management said, would help increase shareholder value. It would also likely help ease concerns over the discount that the exploration and production company’s stock has traded at when compared to some of its peers.
"This is a ‘win-win-win’ for the Antero family as it simplifies our corporate structure, returns capital to shareholders and better aligns shareholder interest,” said CEO Paul Rady. “At the current AR share price, we believe an open market share repurchase program is an attractive way to deliver value to our shareholders.”
The deal is expected to close in 1Q2019. Antero would join several others throughout the industry, including Williams, Enbridge Inc. and Dominion Energy Inc., that are simplifying their corporate structures in response to a decision by the Federal Energy Regulatory Commission earlier this year that eliminated the tax benefits of MLPs. For Antero, the announcement also comes after it formed a special committee earlier this year to probe how to improve its value.
AM’s stock shot up by more than 13% to close on Tuesday at $33.93/unit. Antero, meanwhile, gained about 1% to close at $19.48/share.
Antero is one of the Appalachian Basin’s largest producers. At the end of last year, AM was operating more than 300 miles of low- and high-pressure pipeline in both the Marcellus and Utica shales, along with associated compression and water handling facilities, among other assets.