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(Bloomberg) – The US pipeline giant, Energy Transfer LP, has agreed to acquire the rival company SemGroup Corp. for about $ 1.35 billion in purchases and cash, strengthening billionaire Kelcy Warren's empire, as investors demanded financial discipline.
Energy Transfer buys SemGroup at $ 17 a share, 65% higher than SemGroup's closing price on Friday, according to a statement. Warren, busy with negotiations, recently rejected the NuStar GP Holdings LLC proposal but was rejected once the target company announced that it was sticking to a plan to simplify its trading structure. ;business.
Energy Transfer shares fell 4.4% the day their peers rose after an attack on a crude oil processing facility in Saudi Arabia, which spurred oil prices. According to analysts, although last year Warren was looking for contracts, this decision was a surprise, given the low share price and his efforts to reduce his debt.
"Net turnaround"
"This morning's acquisition represents a radical reversal from recent messaging on portfolio management, capital discipline and accelerated deleveraging," said analysts at Tudor Pickering Holt & Co. in a note to clients.
The transaction is a delicate subject for Warren since Energy Transfer has waived a $ 33 billion deal on the purchase of Williams Cos., Which would have been its largest acquisition to date.
Warren – who built his empire collecting small pipeline companies when the shale boom exploded – announced for the first time that he could soon resume his shopping in August of last year. It was just eight days after the company announced a change in streamlining intended in part to improve stock performance.
"We kiss a lot of frogs in search of a prince," said Warren during a conference call in November. "We work hard. I will tell you, however, we do not find any offers. "
SemGroup's oil terminal and products on Houston Ship Channel is likely the factor that motivated Energy Transfer's decision to buy the company, said Wells Fargo Securities' Michael Blum in a note on Monday. Nevertheless, "many other assets do not seem to match ET's footprint and are of a lower quality and we would not be surprised to see AND divest some," he said.
"From 30,000 feet", in a market where investors are pushing companies to reduce their expenses, increase their debt and increase their free cash flow, we are not sure that the focus of this agreement will spark enthusiasm, "said Blum.
No call
Energy Transfer is likely to attract investors' attention to the composition of its assets and the merits of the transaction, but at first glance, it succeeds in our litmus test for accreditation Wrote Timm Schneider, an analyst at Citigroup Inc. in a note to customers.
"We want to be able to ask some questions, but there is no conference call," Schneider said.
Pipeline developers have struggled to raise capital market funds after the collapse of the oil price that began in 2014. The industry has also been affected by a change in tax policy in the United States. Which has affected natural gas and crude oil companies structured as limited partnerships.
The total acquisition value, including debt, is about $ 5 billion, according to the release. Jefferies LLC acted as exclusive financial advisor to SemGroup, while Bank of America Merrill Lynch advised Energy Transfer.
While Energy Transfer offers a large purchase premium, SemGroup, headquartered in Tulsa, has seen its stock fall by more than half in the past year. The company had previously worked with an advisor on different options for raising funds, people familiar with the topic said earlier this year.
The Sem group grew by 65% Monday morning. "This is a nice exit ramp for the company as a result of a strategic review that could have gone in many directions," said Wells Fargo's Blum.
The deal comes as Energy Transfer plans to sell 33 percent of its pipeline capital, which transports natural gas from the Appalachians to customers in the Midwest, sources close to the record said in July.
(Updates with the commentary of the analyst in the tenth paragraph)
To contact the reporter about this story: Rachel Adams-Heard in Houston at [email protected]
To contact the makers of this story: Simon Casey at [email protected], Christine Buurma, Joe Carroll
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