Panel Discussion Recent M&A Trends and Future Outlook · 2019-12-19 · 1Q 2014 2Q 2014 3Q 2014 4Q...
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Panel Discussion – Recent M&A Trends and Future Outlook MLPA Investor Conference | June 2016
Transcript of Panel Discussion Recent M&A Trends and Future Outlook · 2019-12-19 · 1Q 2014 2Q 2014 3Q 2014 4Q...
Panel Discussion –
Recent M&A Trends and Future Outlook
MLPA Investor Conference | June 2016
Meet the Panel
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Sean Wheeler
Latham & Watkins
David Buck
Andrews Kurth
Hillary Holmes
Baker BottsDavid Oelman
Vinson & Elkins
US Oil & Gas M&A Deal Activity Trends
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Source: Thomson
US Oil & Gas M&A Deal Count
US Oil &Gas M&A Deal Value
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US Oil & Gas M&A Deal Activity Trends
4Source: Bloomberg, Thomson
US Oil & Gas M&A Deal Count
US Oil &Gas M&A Deal Value
WTI Price
107.26
26.21
49.01
• MLPs have seen their market prices fall meaningfully and, even though some recovery
has occurred, there remains the possibility of consolidation among MLPs
‒ Smaller MLPs will find it harder to survive, which should generate acquisition opportunities for
larger MLPs
‒ Future structure of the MLP will likely be different (lower or no IDRs, longer subordination)
MLP Landscape
$2 $3 $4 $7 $11 $11 $16 $27 $29 $46 $54 $68
$107 $145
$88
$156
$235$280
$331
$458 $494
$351 $367
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Total market capitalization of energy MLPs
Number of energy MLPs
Source: Wells Fargo5
MLP Distribution Cuts
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Energy Bankruptcies - Filings Since 2015
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18
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1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016
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7Source: Thomson
Who Controls Our Fate?
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DOOR #1 DOOR #2 DOOR #3
Who Controls Our Fate?
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DOOR #1 DOOR #2 DOOR #3
Hillary Clinton Donald Trump Prince Mohammed
bin Salman
Recent Transactions
Related Party M&A and The Conflicts
Committee Process
Recent M&A Trends and Future Outlook
SemGroup Corp. / Rose Rock Midstream, L.P.
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ACQUIRER SemGroup Corporation (“SEMG”)
TARGET Rose Rock Midstream, L.P. (“RRMS”)
SUMMARY
SemGroup has agreed to acquire the remaining
44% of Rose Rock Midstream it doesn't currently
own, for $389 million in an all stock-for-unit
transaction at a ratio of 0.8136 SemGroup common
shares per Rose Rock common unit for a total
purchase price of approximately $389 million.
TRANSACTION
VALUEUS$389 million
DATE ANNOUNCED May 31, 2016
• SemGroup’s c-corp structure attracts a broader investor audience with a simplified capital structure expected to improve cost of capital
• 100% ownership of Rose Rock’s EBITDA
• SemGroup liquidity pro-forma expected to be ~$1.1 billion
• Allows SemGroup to execute on growth plan including strategic acquisitions
• Pro-forma company expects to see long-term tax depreciation related to the transactions
STRATEGIC HIGHLIGHTSTRANSACTION OVERVIEW
ADDITIONAL INSIGHT
Acquisition Provides SemGroup with Simplified Structure
Source: Company Investor Presentation
Western Gas Partners, LP / Anadarko
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ACQUIRER Western Gas (“WES”)
TARGET Anadarko Petroleum Corporation (“APC”)
SUMMARY
Western Gas Partners LP acquired Springfield
Pipeline LLC from Anadarko Petroleum Corp. for
$750 million. The partnership funded the transaction
through the issuance of $449 million in aggregate
amount of 8.5% perpetual convertible preferred units
of Western Gas Partners LP and Western Gas
Equity Partners LP to First Reserve Corp. and
Kayne Anderson Capital Advisors LP at a price of
$32.00 per unit, the issuance of 1,253,761 and
835,841 WES common units at a price of $29.91 per
common unit to Anadarko and Western Gas Equity
Partners LP, respectively, and the borrowing of
$247.5 million on its revolving credit facility. .
TRANSACTION
VALUEUS$750 million
DATE CLOSED March 14, 2016
• High-quality addition of mature assets to midstream portfolio requiring minimal ongoing capital
• Expands Eagle Ford position with 548 miles of gas and 241 miles of oil gathering pipeline as well as 24 compressor stations
• Immediately accretive with 100% fee-based cash flows and recently negotiated term extension through 2034
STRATEGIC HIGHLIGHTSTRANSACTION OVERVIEW
ADDITIONAL INSIGHT
Asset Overview
Source: Company Investor Presentation
Recent Transactions
Third Party M&A
Recent M&A Trends and Future Outlook
TransCanada Corp. / Columbia Pipeline
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ACQUIRER TransCanada Corporation (“TransCanada”)
TARGET Columbia Pipeline Group, Inc. (“CPGX”)
SUMMARY
TransCanada Corp. has agreed to buy Columbia
Pipeline Group Inc. for $13 Billion in cash and debt
transaction. The transaction is valued at $13 billion,
comprised of $10.2 billion in cash and $2.8 billion in
debt. On completion of the transaction, Columbia
shareholders will receive $25.50 per common share,
an 11% premium based on Columbia's closing stock
price on the NYSE of $23.00 as of March 16, 2016
TRANSACTION
VALUEUS$13 billion
DATE ANNOUNCED March 17, 2016
• Significant position in Marcellus and Utica shale plays which adds diversification to TransCanada’s current operations
• Pro forma, company creates one of the largest natural gas transmissions in North America (56,900 miles)
• Targeted annual cost, revenue and financing benefits ~US$250 million
• Results in a combined US$23 billion portfolio of secured, near-term growth projects
• Financing plan includes issuance of US$4.4 billion of subscription receipts, announced planned sale of US Northeast merchant power assets and monetization of minority interest in Mexican natural gas pipeline business
STRATEGIC HIGHLIGHTSTRANSACTION OVERVIEW
ADDITIONAL INSIGHT
Expands Natural Gas Footprint
Source: Company Investor Presentation
Public GP Simplifications
Recent M&A Trends and Future Outlook
• With a publicly traded GP, a simplification can take several forms, including (i) a
merger of the GP into a subsidiary of the MLP, (ii) an exchange of IDRs for MLP
common units and a liquidation of the GP or (iii) the GP acquires the MLP via merger
‒ Vote of the GP equityholders to approve the transaction is typically required
‒ Vote of the MLP equityholders is typically not necessary, but may be advisable
• Typically the MLP public unitholders obtain voting rights for the board of directors,
but there are examples where the sponsor retained control
• Examples:
– Crestwood Midstream (2015): GP buys MLP
– Penn Virginia Resource (2011): MLP buys GP
– Enterprise Products Partners (2010): MLP buys GP
– Inergy (2010): Hybrid, MLP survives merger
– Buckeye Partners (2010): MLP buys GP
– Magellan Midstream (2009): Liquidation
– MarkWest Energy (2008): MLP buys corporate sponsor
Public GP Simplification
16Source: Company Investor Presentation
• For publicly traded GPs, merger (or liquidation) will require unitholder vote under
terms of constituent documents
‒ Proxy solicitation will likely take several months
‒ Where unitholder vote at GP is required, vote at MLP may be advisable (but not required) to
obtain approval of conflicts of interest under MLP LPA
• For private GPs, approval can be obtained immediately, obviating need for delayed
closing
• Exchange rules do not require MLP unitholder approval for issuance of new equity
• Simplifications are generally non-taxable except to the extent of cash received
‒ Contributions to partnerships are generally non-taxable
‒ Exceptions for cash distributions, liability shifts and recent property contributors
‒ Public GP simplifications normally include tax opinions to both public groups that no tax will be
recognized other than these exceptions
Simplification
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Roll-Ups
Recent M&A Trends and Future Outlook
• Some corporate sponsors have found it advisable to merge their MLP into the
corporation for equity
• Examples:
– Targa Resources Partners – Targa Resources Inc.
– Kinder Morgan Energy Partners – El Paso Energy Partners – Kinder Morgan Inc.
– Pioneer Southwest Energy Partners – Pioneer Natural Resources
– Phosphate Resource Partners – IMC Global
Roll-Ups
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• The timeline for roll-up transactions is very similar to the timeline for public company
merger transactions generally, 2-4 months from signing to closing depending on the
length of SEC review process of disclosure document
– Typically completed through a reverse triangular merger, with unitholder approval at MLP
o If the MLP is out of subordination, MLP units held by a sponsor can typically be counted towards majority
approval
– If shares issued at corporate or LLC parent are in excess of 20% of outstanding shares, vote
will also be required at parent
• The time between signing and closing, and the fact that there is often a unitholder
vote, increases litigation risk during pendency of the transaction
– Litigation will often challenge:
o Elements of the process utilized in approving the transaction
o The price or exchange ratio
o Alleged omissions in the disclosure document
– Time between signing and closing provides an opportunity for settlement of litigation, if desired
Roll-Ups
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• If a parent has a Schedule 13D on file with respect to MLP, an offer to take the MLP
private may trigger a required amendment
– This leads many parent companies to make the initial “take private” proposal public
• If the roll-up transaction involves any cash payment or consideration, it may be
considered a “take private” transaction governed by Rule 13e-3
– Would require additional disclosures, including filing of all bank books provided to parent and
MLP boards
• In taxable roll-up transactions, special consideration should be paid by the conflicts
committee or other body charged with evaluating the transaction on behalf of
unaffiliated unitholders
– Fairness opinions from investment banks typically do not take into account tax implications,
but advisors can help in analysis
– Tax liability may vary significantly from unitholder to unitholder, depending on basis
– Unitholder views on taxes (including as compared to value of any cash consideration received)
may sway voting decisions
– Recent roll-up complaints have focused on tax impacts on unaffiliated unitholders
Roll-Ups
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Equity Recapitalizations
Recent M&A Trends and Future Outlook
• With distribution cuts due to industry changes, an MLP’s capitalization may no longer
be appropriate for the cash-generating potential of its business
– “Out of the money” subordinated units may provide a band through which the business (and
aggregate distributions) has to grow before common unit distribution growth is realistic
– IDRs may be so out of the money as to not provide the same incentives for sponsor drop
downs
• Several MLPs have revised the terms of their capital structure to eliminate
subordinated units and rationalize the IDRs, and in some cases provide new capital
for the MLP:
– Genesis Energy
– Eagle Rock
– Niska Gas Storage
– American Midstream
– Westmoreland (Oxford)
– BlueKnight (Semgroup)
Equity Recapitalizations
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• Niska was a gas storage MLP with assets in Canada, California and Oklahoma
• Completed its initial public offering in May 2010 with traditional capital structure of
common units, subordinated units and IDRs
• Suspended distributions on subordinated units in November 2011, continued paying
MQD on common units
• In April 2013, announced a restructuring whereby Niska’s sponsor (affiliates of
Carlyle/Riverstone) converted their existing subordinated units and IDRs into “new
IDRs”
• New IDRs entitle Carlyle/Riverstone affiliates to receive 48% of all distributions to
unitholders in excess of $0.35 per common unit per quarter (the same “MQD” as
IPO), after the payment of any arrearages on common units
– “Old IDRs” had been entitled to receive increasing percentages (ranging from 13% to 48%) of
incremental cash distributions after Niska’s unitholders (both common and subordinated)
exceeded quarterly distributions ranging from $0.4025 per unit to $0.5250 per unit
– No unitholder approval
Niska Gas Storage LLC
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Who Does Deals?
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Make MLPs Great Again
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