Midstream assets operator Energy Transfer Partners, L.P. (ETP) announced that it has entered into a merger agreement with Regency Energy Partners LP (RGP). Post-declaration, Energy Transfer units witnessed a fall of over 6% on the NYSE. On the other hand, Regency Energy gained nearly 5%.
The $18 billion unit-for-unit merger agreement includes $6.8 billion of debt and other liabilities assumption by Energy Transfer Partners. The transaction is likely to close during the second quarter of this year, making ETP the second largest MLP.
Per the deal, Regency unitholders will receive 0.4066 ETP common units and 32 cents cash for each Regency unit they hold. This will result in an all-in price of $26.89 per unit for Regency unitholders, representing a premium of 13% based upon RGP’s closing price of $23.75 as of Jan 23, 2015. Regency unitholders will be 34% stake-owners in the merged entity.
Moreover, Energy Transfer Equity, L.P. (ETE) – the parent firm of ETP and RGP that holds general partner interest and 100% incentive distribution rights (IDRs) in both – has decided to lower incentive distribution from ETP by $320 million over a period of five years. Following the closure of this deal, ETP would receive $80 million IDR subsidiary for the first year and $60 million for the next four years.
Energy Transfer Partners added that the merger has been evaluated by rating agencies. While there will be no change in ETP’s credit rating, RGP’s rating may be upgraded.
The merger agreement is a move to streamline operations in the current environment of staggering oil and natural gas prices. Last year, Kinder Morgan Inc (KMI) had announced a similar move, consolidating three of its businesses into one.
Separately, Energy Transfer Partners has also announced an increase in its fourth-quarter 2014 distribution payout, marking it the sixth consecutive quarterly hike. The partnership declared quarterly distribution of 99.5 cents per unit, up 8.2% year over year and 2.1% sequentially. The new distribution will be paid on Feb 13 to unitholders of record as of Feb 6.
Currently, Energy Transfer Partners carries a Zacks Rank #3 (Hold).
(We are reissuing this article to correct a mistake. The original article, issued on Jan 27, 2015, should no longer be relied upon.)
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