EnLink Midstream on Monday announced plans to simplify its corporate structure, the latest in a wave of similar deals among midstream master limited partnerships (MLP) after changes to FERC’s tax policy made the MLP structure less beneficial for pipeline operators.
The Dallas-based midstreamer announced that general partner EnLink Midstream LLC (ENLC) has agreed to purchase all remaining units of MLP affiliate EnLink Midstream Partners LP (ENLK) in an all-stock transaction.
Under the merger agreement, unitholders of ENLK will receive 1.15 common units of ENLC for each ENLK common unit held. The conflict committees and boards of directors for both companies have approved the deal, which is expected to close in 1Q2019. The transaction is still subject to the approval of ENLK common unitholders, along with other customary regulatory approvals and closing conditions.
EnLink CEO Michael Garberding said the transaction will be immediately accretive to both ENLC and ENLK common unitholders.
“Our business model is unchanged, and we continue to execute on our seven growth strategies,” Garberding said. “Through this transaction, we will now have a streamlined structure that further strengthens our ability to achieve greater returns on the capital we deploy, allowing us to create lasting value for all our stakeholders.”
The tie-up will create a $13 billion enterprise on closing, according to management, who touted a lower cost of capital and low double-digit distributable cash flow per unit through 2021 as among the benefits of the transaction.
The distribution to coverage ratio of the combined entity should improve from 1.3x to 1.5x through 2021, and the transaction “results in excess of $700 million of cumulative retained cash flow…over the same period” that would allow EnLink to self-fund the equity portion of a majority of growth capital expenditures, management said. The merger would also result in a “tax basis step-up” for ENLK’s assets under the combined entity.
The combined company will operate as EnLink Midstream LLC and continue to trade on the New York Stock Exchange as ENLC.
EnLink joins Antero Resources, Energy Transfer, Enbridge, Boardwalk, and Williams as another in a string of MLP mergers following the Federal Energy Regulatory Commission’s decision earlier this year to stop allowing MLP interstate pipelines to recover income tax allowances in cost of service rates. FERC’s decision has drawn criticism from a former commissioner and pushback from the pipeline industry.
EnLink operates natural gas, crude oil, condensate and natural gas liquids midstream services across several top U.S. basins, with its core focus in the Permian Basin, Oklahoma and Louisiana’s Gulf Coast. Earlier this year, Oklahoma City-based Devon Energy Corp. agreed to sell its ownership in EnLink to an affiliate of Global Infrastructure Partners for $3.125 billion.
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