Energy Transfer to Buy Regency Energy in $11 Billion DealJim Polson
Energy Transfer Partners LP agreed to buy Regency Energy Partners LP, a pipeline company it controls, streamlining the organization at a time of plunging oil and natural gas prices.
The cash-and-stock deal values Regency at about $11 billion, a 13 percent premium based on the Jan. 23 closing price, the companies said in a joint statement Monday. Holders will get 0.4066 units of Energy Transfer plus a cash payment of 32 cents a unit. Energy Transfer Equity LP controls Regency through ownership of its general partner and already owns about 22 percent of the publicly traded units, according to data compiled by Bloomberg.
The deal is the latest attempt to simplify the often complex structures of pipeline companies. Last year, fellow pipeline owner Kinder Morgan Inc. announced plans to consolidate three businesses in a $44 billion deal. Billionaire Kelcy Warren, 59, leads Energy Transfer Partners and is chairman and the biggest shareholder of Energy Transfer Equity, which controls both Regency and Energy Transfer Partners.
Regency’s stock has declined 22 percent in the past six months as oil and natural gas prices dropped. The partnership had been dismissed by many investors as “damaged goods” because of its exposure to natural gas liquids prices and its location in less desirable basins, said Bradley Olsen, a Houston-based analyst for Tudor Pickering Holt & Co.
“In light of the current volatility in commodity prices and the changes in the capital markets, it became apparent over the last several months that Regency needed more scale and diversification, along with an investment-grade balance sheet, to continue its growth,” Mike Bradley, chief executive officer of Dallas-based Regency, said in the statement.
Regency spent last year snapping up pipeline and processing assets, including reported talks to buy pipelines in the Marcellus Shale in New York and Pennsylvania from Talisman Energy Inc. Its market value has more than doubled since 2012.
Including debt, the deal values Regency at about $18 billion. Regency rose 5 percent to $24.93 at the close in New York. Energy Transfer Partners fell 6.4 percent to $61.13, while Energy Transfer Equity jumped 8.7 percent to $58.70.
The announcement comes seven months after Energy Transfer Equity scuttled a reported $15 billion bid for Targa Resources Corp., one of the leading exporters of U.S. natural gas products.
With the deal, Energy Transfer “intends to become a major player in the Marcellus and Utica shales and believes that pro forma this merger, it is ideally positioned to achieve that goal in the near term,” according to the statement.
The acquisition would make Dallas-based Energy Transfer the second-largest master-limited partnership, a structure that allows entities to pass through much of their earnings to investors without paying federal income tax. Enterprise Products Partners LP is the largest by market value.
Kinder Morgan, which had owned several master-limited partnerships, merged them into a corporation during its consolidation.
Energy Transfer’s group of companies owns and operates about 71,000 miles (114,000 kilometers) of pipelines handling natural gas, liquids derived from gas, fuel and crude oil, according to today’s statement.
The transaction has been approved by both boards and is expected to close in the second quarter, the companies said.
“This is a deal that obviously Energy Transfer had been keeping its eye on to see if the math works,” said Olsen, who rates both Energy Transfer Partners and Energy Transfer Equity at buy. “With Regency down so much and Energy Transfer up in the last few months, the math now definitely works.”
Latham & Watkins LLP advised Energy Transfer Partners and Baker Botts LLP advised Regency. Akin Gump Strauss Hauer & Feld LLP was legal adviser to the Regency conflicts committee. Richards Layton & Finger was legal adviser to Energy Transfer Partners’ conflicts committee.
JPMorgan Chase & Co. advised Regency’s conflicts committee and Barclays Plc advised Energy Transfer Partners’ conflicts committee.
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