Billionaire Kelcy Warren Streamlines Energy Pipeline Empire

  • Deal follows collapse of Williams takeover earlier this year
  • Brings two of Warren’s biggest partnerships under one roof

Kelcy Warren, the billionaire pipeline investor who founded Energy Transfer Equity LP, is working to consolidate his empire.

His Sunoco Logistics Partners LP unit is buying Energy Transfer Partners LP, the partnership that controls it, in a transaction that values the target at $21.3 billion. Energy Transfer unitholders will receive 1.5 common units of Sunoco for each unit they own, equal to a 10 percent premium to its average price in the past 30 trading days, according to a statement Monday. 

The move simplifies the pipeline partnerships controlled by Warren after his proposed $33 billion takeover of Williams Cos. fell apart earlier this year. In its aftermath, some investors had wondered if Warren would look to streamline the corporate structure to make it easier down the road to raise capital for transactions at a time when oil was lower. 

“It would put his two biggest MLPs under one roof,” Michael Kay, an analyst for Bloomberg Intelligence, said by phone Monday, referring to the master-limited partnerships. “It’s a little out of left field because of who is buying who. One is a lot bigger than the other.”

The consolidation borrows a leaf out of fellow billionaire Richard Kinder’s book after Kinder Morgan Inc. announced a plan two years ago to consolidate its operations in a series of transactions valued at about $44 billion.

“Kelcy’s thoughts are that there is more consolidation to come in the sector,” said Rob Thummel, who helps manage $15 billion at Tortoise Capital Advisors LLC, including units of the Energy Transfer partnerships. “He has to position himself with the lowest cost of capital if he’s going to be able to compete.”

Dakota Access

Energy Transfer Partners, the Dallas-based company building the controversial Dakota Access oil pipeline that’s been plagued by protests from Native American tribes and environmentalists, owns and operates more than 62,500 miles (100,584 kilometers) of natural gas and liquids pipelines. Warren will continue to be chief executive officer of the new entity.

Energy Transfer Partners slid 7.2 percent to $36.52 in New York. Sunoco Logistics fell 6.6 percent to $24.47. Energy Transfer Equity gained 3.6 percent.

“Anything that’s happening short term, I don’t get too alarmed about,” Warren said Monday on a conference call when asked about the market reaction to the deal.. “But long term, I think we’re good.”

The deal includes a “back door” distribution cut at Energy Transfer Partners because Sunoco pays out less to holders, Ethan Bellamy, an analyst for Robert W. Baird & Co., said in an interview. “Energy Transfer Equity holders like the deal because it reduces the likelihood that it will need to cut its dividend to pay down Energy Transfer Partners debt.”

Lower Payouts

Payouts from Energy Transfer Partners will fall about 27 percent, Matt Schmid, an analyst at Stephens Inc., said Monday in an interview. That amounts to a “reset,” because the group promised in Monday’s statement to increase Sunoco’s payout by at least 10 percent annually, he said.

Monday’s deal paves the way for savings in excess of $200 million annually by 2019, the statement showed. The combined partnership is expected to be the second-largest MLP as measured by enterprise value. The transaction was approved by the boards of both partnerships and is expected to close in the first quarter.

Barclays Plc acted as financial advisor to Energy Transfer Partners. Citigroup Inc. advised Sunoco Logistics.

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