Buckeye to Acquire General Partner for $1.14 Billion to Cut Capital Costs

Buckeye Partners LP, the U.S. pipeline operator that traces its roots to John D. Rockefeller’s Standard Oil Co., agreed to buy the owner of its general partner for about $1.14 billion to cut distribution and capital costs.

Buckeye will pay 0.705 unit for each unit of Buckeye GP Holdings LP, the Houston-based fuel transporter said today in a statement. The transaction values Buckeye GP at $41.01 a unit, 32 percent higher than yesterday’s closing price.

Buckeye GP owns Buckeye GP LLC, which is Buckeye’s general partner. As a so-called master limited partnership, or MLP, Buckeye is controlled by its general partner and pays most of its cash flow to its owners. General partners get preferential dividends, or distributions, from the MLPs they control. Buckeye said it will cancel Buckeye’s incentive distribution rights.

Taking over Buckeye GP could accelerate cash distributions to Buckeye unit holders, Forrest E. Wylie, the partnership’s chief executive officer, said in the statement. A lower cost of capital will improve Buckeye’s competitive position in pursuing growth opportunities, the partnership said.

With the additional units being issued, Buckeye said 2011 distributable cash flow per unit may drop by 6 percent to 7 percent.

Buckeye fell $2.53, or 4.4 percent, to $55.64 at 12:04 p.m. in New York Stock Exchange composite trading. Buckeye GP jumped $5.52, or 18 percent, to $36.70.

Barclays Plc advised the independent directors of Buckeye’s general partner on the transaction. Credit Suisse Group AG advised Buckeye GP.

The former Buckeye Pipe Line Co. was created in the 1880s as a subsidiary of Standard Oil. It became an independent company in 1911 and reorganized as an MLP in 1986.

To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.

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