Enterprise Products Partners LP (EPD) and Enterprise GP Holdings LP (EPE) have agreed to merge in an $8 billion deal that would combine EPE with a wholly owned subsidiary of EPD, the parties said Tuesday. The combination is aimed at reducing capital costs and simplifying the partnership structure, they said.
EPE owns the general partner of and limited partner interests in EPD. The deal would cancel the 2% economic general partner interest, the general partner incentive distribution rights in EPD and approximately 21.6 million EPD common units currently owned by EPE. Affiliates of privately held Enterprise Products Co. (EPCO) will continue to own the general partner of the combined entity.
Units of EPE closed up sharply on the New York Stock Exchange Tuesday, gaining nearly 12% to end trading at $55.75. EPD units lost nearly 1% to close at $38.13.
EPE unitholders would receive 1.5 EPD common units in exchange for each EPE limited partner unit they own at closing, representing a premium of approximately 16% based on last Friday’s (Sept. 3) closing prices. Based on cash distributions paid in August by EPE and EPD, the deal would result in a 54% increase in cash distributions for EPE unitholders.
Certain affiliates of EPCO that own about 76% of outstanding EPE units have executed a support agreement pursuant to which they have agreed to vote their EPE units in favor of the merger. In addition, an affiliate of EPCO has agreed to waive the distributions that it would otherwise be entitled to receive on certain EPD common units for the first five years after the closing of the merger. Based on the quarterly distribution rate of 57.5 cents/unit that EPD paid in August, the EPCO affiliate would waive more than $275 million of aggregate cash distributions over this five-year period. Initially, the EPCO affiliate would be waiving distributions on approximately 30.6 million EPD common units during the first four quarters after the closing of the merger with the number of units subject to the distribution waiver declining over the following four years.
“Just like the landmark action taken in 2002 to eliminate our general partner’s 50% incentive distribution rights, this transaction would not be possible without the continued support of EPCO and its affiliates and their agreement to waive a significant amount of distributions they would otherwise be entitled to receive during the first five years after the merger closes,” said Michael A. Creel, CEO of EPD’s general partner. “With this support from EPCO in combination with our portfolio of growth opportunities and additional accretion provided by a lower cost of capital associated with the permanent elimination of the incentive distribution rights, we believe this merger will support the long-term growth of our partnership and cash distributions to our partners.”
Since its initial public offering in July 1998, EPD has grown its asset base from $715 million to $26 billion as of the end of March, the partnership said on its website. “This phenomenal growth is a result of both acquisitions, as well as expansions from organic growth opportunities.”
The partnership has 49,100 miles of natural gas, natural gas liquids (NGL), crude oil, refined products and petrochemical pipelines; 190 MM bbl of NGL, refined products and crude oil storage capacity; 27 Bcf of natural gas storage capacity; 25 natural gas processing plants; 18 fractionation facilities; NGL import and export terminal capacity as well as marine services assets and six offshore hub platforms.
EPD unitholders are expected to benefit from:
EPE unitholders are expected to benefit from:
Late last year EPD completed its acquisition of TEPPCO Partners LP, making it the nation’s largest publicly traded partnership with an enterprise value of approximately $30 billion, 48,000 miles of pipelines and market capitalization of $18 billion (see Daily GPI, Oct. 27, 2009).
Merger completion with EPE is subject to approval by a majority of outstanding EPE limited partner units; EPE units held by affiliates of EPCO that are subject to the support agreement are sufficient to satisfy this condition, the parties said. Regulatory approvals also are needed. The merger is expected to close during the fourth quarter.
Upon closing, EPD expects affiliates of EPCO and management will own approximately 39% of EPD’s outstanding common units.
Â©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |