Dallas-based Energy Transfer Equity LP (ETE), the owner of the general partner of Energy Transfer Partners LP (ETP), Tuesday agreed to acquire the general partner of Regency Energy Partners LP for close to $300 million.
ETE would use preferred units to acquire the full stake in Regency’s general partner from an affiliate of GE Energy Financial Services, a unit of General Electric. ETE would own the general partner of both ETP and Regency, which will remain separately operated partnerships.
“We have been actively looking for growth and acquisition opportunities for ETE for some time,” said ETE Chairman Kelcy Warren. “The opportunity to acquire interests in Regency made sense on many levels. Distributions from Regency not only help to diversify ETE, but they also enhance its ability to increase distributions over time by pursuing new growth opportunities at both ETP and Regency.
“While ETP and Regency will be competitors in the midstream space, they will be run by highly talented management teams that will look for opportunities to work together.”
Under the terms of the transaction agreements, ETP is to transfer a 49.9% interest in Midcontinent Express Pipeline LLC (MEP) to ETE in exchange for the redemption of 12.3 million ETP units valued at around $600 million based on a 10-day weighted average closing price of ETP units as of May 4.
ETE then would exchange the interest in MEP with Regency for 26.3 million new Regency common units valued at about $600 million based on a 10-day weighted average closing price of Regency units as of May 4.
Once the transactions are completed, ETE expects to own about 22% of Regency’s outstanding common units and 28% of ETP’s outstanding common units. ETP would continue to deliver natural gas to MEP through its intrastate pipeline system. KMP would retain its half stake in MEP.
MEP is a joint venture of Kinder Morgan Energy Partners LP (KMP) and ETP. Last week MEP asked the Federal Energy Regulatory Commission for authorization to begin service on expansion facilities associated with the 500-mile Oklahoma-to-Alabama pipeline that provides shale gas producers with greater market access (see Daily GPI, May 11).
Earlier this year ETP announced plans to expand its proposed Tiger Pipeline to serve the Haynesville Shale of North Louisiana (see Daily GPI, Feb. 11). The Haynesville is also served by Regency infrastructure (see Daily GPI, Jan. 13).
“This ownership transfer of MEP is tax-efficient to our unitholders, and the value being received is at an attractive multiple,” said Warren. “It also allows ETP to forego approximately $86 million in required capital commitments to MEP, and enables ETP to focus its efforts on pursuing attractive capital redeployment opportunities.
“ETP plans to retire the common units it will receive from ETE, which will make future growth projects or acquisitions more accretive for our unitholders due to the reduced number of ETP units outstanding and the reduced distribution obligations associated with those units.”
All transactions are expected to be closed within the next month.
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