Energy Transfer to Acquire Enable Midstream in $7.2 Billion All-stock Deal

Energy Transfer LP agreed on Feb. 17 to acquire Enable Midstream Partners LP in an all-stock deal described as a “bolt-on acquisition” by Energy Transfer as part of a push for natural gas.

“Energy Transfer will further enhance its connectivity to the global LNG market and the growing global demand for natural gas as the world transitions to cleaner power and fuel sources,” the company said in a joint release announcing the transaction.

The all-equity transaction for Enable, valued at about $7.2 billion including debt, comes weeks after a U.S. appeals court dealt a blow that could shut down the Dakota Access crude pipeline operated by Energy Transfer.

In the Feb. 17 release, Energy Transfer said it expects the acquisition of Enable to generate more than $100 million of annual run-rate cost and efficiency savings plus immediately add free cash flow (FCF) post-distributions.

“Inclusive of the full $100 million in cost synergies, we see the transaction coming at ~6.6x EV/EBITDA which is consistent with ET management’s position that the deal is accretive to both excess FCF and leverage metrics,” analysts with Tudor, Pickering, Holt & Co. (TPH) wrote in a research note on Feb. 17. 

Based in Oklahoma City, Enable Midstream operates natural gas gathering and processing assets in the Anadarko Basin in Oklahoma, which Energy Transfer said will significantly strengthen its NGL infrastructure in the Midcontinent region. The acquisition will also provide significant gas gathering and processing assets in the Arkoma Basin across Oklahoma and Arkansas and the Haynesville Shale in East Texas and North Louisiana, the companies said.

Additionally, Energy Transfer expects to integrate Enable’s Anadarko gathering and processing complex with Energy Transfer’s existing NGL transportation and fractionation assets on the U.S. Gulf Coast, which Energy Transfer said could result in significant incremental earnings from potential commercial synergies.

In addition to these synergies, Energy Transfer expects the combination of its infrastructure with the Enable assets will allow “the combined company to pursue additional commercial opportunities,” Energy Transfer said in a joint release.

“While we view increased scale as necessary in the midstream sector, we expect today’s reaction to be mixed as ENBL metrics screen attractively but ET will need to reiterate that M&A is not the only outcome of increased financial flexibility,” TPH analysts wrote in the firm’s note

The Enable transaction is expected to close in mid-2021.

As part of the deal terms announced Feb. 17, Enable unitholders will receive 0.8595 of Energy Transfer's units for each Enable unit. In addition, each outstanding Enable Series A preferred unit will be exchanged for 0.0265 Series G preferred units of Energy Transfer. The deal also includes a $10 million cash payment for Enable’s general partner.

The two largest unitholders of Enable—CenterPoint Energy Inc. and OGE Energy Corp.—have entered into support agreements to vote in favor of the merger, which TPH analysts said will provide the transaction with the necessary level of unitholder support needed to proceed.

According to TPH, CenterPoint and OGE Energy own roughly 79.2% of Enable outstanding units.

Citi and RBC Capital Markets acted as financial advisers to Energy Transfer and Latham & Watkins LLP acted as legal counsel. Goldman Sachs & Co. LLC was Enable’s financial adviser with Vinson & Elkins LLP serving as legal counsel.

Intrepid Partners LLC served as financial adviser and Richards, Layton & Finger PA provided legal counsel to Enable’s conflicts committee.

Gibson Dunn advised Intrepid Partners as financial adviser to the conflicts committee of Enable Midstream Partners. The Gibson Dunn team was led by Houston partner Hillary Holmes and included associates Justine Robison and JP Lopez. Houston partner James Chenoweth advised on tax aspects.