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Crestwood-Inergy Combo to Be Major Shale Patch Midstreamer
The Crestwood and Inergy companies are merging to create a $7 billion midstream business that will serve numerous big-name North American unconventional plays with existing assets and additional infrastructure to be developed or acquired, they said Monday.
Crestwood Midstream Partners LP and Crestwood Holdings LLC, and Inergy LP and Inergy Midstream LP said their tie-up will be a merger of equals to be accomplished through a series of transactions resulting in Crestwood Holdings acquiring the general partner, and thus control, of Inergy LP.
Crestwood brings relationships and contracts with top shale producers, and Inergy provides relationships with end-users, including local distribution companies, refiners, petrochemicals, marketers and producers.
The new company, which has yet to be named, will serve plays such as the Marcellus Shale, Bakken Shale, Eagle Ford Shale, Permian Basin, Powder River Basin, Niobrara Shale, Utica Shale, Barnett Shale, Fayetteville Shale, Granite Wash, Haynesville Shale and Monterey Shale.
Enhanced scale and diversification position the combined partnership to compete for major greenfield development and acquisition opportunities across the midstream sector, the companies said. Growth will be driven by a portfolio of long-term, fee-based contracts coupled with a “sizable backlog” of organic capital opportunities across multiple geographies, they said.
The new enterprise will have “operations in virtually every premier shale play in North America” composed of:
Crestwood Chairman, President and CEO Robert G. Phillips will lead Inergy LP and will serve as chairman, president and CEO of the combined company.
“We view this transaction as a merger of equals through which we are creating a larger, more diversified operating platform that will be highly attractive to investors, customers, creditors and employees,” Phillips said. “Crestwood operates a first-class portfolio of shale-focused midstream assets, but our operational capabilities and services to our customers currently end at the tailgate of the processing plant. With this combination, we will truly begin to experience the power of the value chain growth strategy by offering our customers a more comprehensive and competitive suite of services that enables us to capture incremental fee opportunities that expand margins and maximize returns on investment.”
Inergy Chairman and CEO John J. Sherman said his company has been transforming itself into a pure-play midstream services provider.
“Both of our companies are focused on capitalizing on the rapidly developing U.S. shale plays, and we have been evaluating a number of opportunities to expand our services to gain access to incremental hydrocarbon supply,” Sherman said. “Crestwood’s reputation and strong competitive position in the gathering and processing, or supply side of the business, greatly complements what we do on the demand side of the business.”
Pro forma, the enterprise is expected to generate $450 million of 2013 estimated earnings before interest, taxes, depreciation and amortization and to have a total enterprise value of more than $7 billion, including both Inergy LP and Inergy Midstream. Better access to cheaper capital for acquisition opportunities is one benefit of the combination, the companies said.
“Both companies are focused on capitalizing on the unprecedented midstream growth opportunity resulting from the upstream development of North American shale plays,” they said. “The combined partnership will have one of the top shale portfolios in the industry with an established position or an active development project in every premier shale play in the U.S.”
No single customer would account for more than 20% of the combined partnership’s current revenues. About 84% of the consolidated partnership’s expected 2013 gross margin is under fixed-fee contracts, 51% of which is under firm, take-or-pay style contracts with no volumetric or commodity risk.
The combined partnership is anticipated to receive a credit rating in line with the current Inergy corporate family rating. “With a strong pro forma balance sheet, significant contracted cash flows and strong ability to continue deleveraging, achieving investment grade status to further drive cost of capital synergies continues to be a key objective of the partnership,” the companies said.
Crestwood and Inergy expect to realize financial synergies of $15-20 million on an annual run rate within the next 24 months, they said.
The combined partnership will be headquartered in Houston with executive offices in Kansas City, MO, and Fort Worth, TX.
Executive management is expected to include senior executives from both companies and will be announced upon completion of the merger. The combined companies’ newly constituted boards will include representatives from both Crestwood and Inergy. Upon closing, Sherman and Inergy President R. Brooks Sherman Jr. will step down from day-to-day management; however, both have elected to maintain 100% of their meaningful personal investment in the pro forma partnership, the companies said. Additionally, John J. Sherman will continue to serve as a director on both the board of Inergy LP as well as the board of Inergy Midstream.
Crestwood Holdings will acquire the general partner of Inergy LP and will contribute the general partner and incentive distribution rights of Crestwood Midstream to Inergy LP in exchange for Inergy LP common units. Separately, Crestwood Midstream will be merged with a subsidiary of Inergy Midstream. Inergy Midstream and Inergy LP will continue to be listed on the NYSE under the ticker symbols “NRGM” and “NRGY,” respectively.
Crestwood Midstream unitholders will receive 1.070 common units of Inergy Midstream for each unit of Crestwood Midstream they own, representing a 5% premium to the 20-day volume-weighted average price of Crestwood Midstream common units. Additionally, all Crestwood Midstream public unitholders other than Crestwood Holdings will receive a one-time cash payment at closing of about $35 million in the aggregate, or $1.03/unit, $25 million of which will be payable by Inergy Midstream and approximately $10 million of which will be payable by Crestwood Holdings.
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