Energy Transfer Equity LP (NYSE: ETE) said Aug. 1 it plans to buy out Energy Transfer Partners LP (NYSE: ETP) in a long-awaited transaction following regulatory changes to the U.S. tax policy earlier this year that removed certain benefits for MLPs.
The transaction includes the purchase of all outstanding public limited partner units in Energy Transfer Partners in a unit-for-unit exchange worth $27 billion in ETE stock.
In connection with the transaction, Energy Transfer Equity’s incentive distribution rights (IDRs) in Energy Transfer Partners will be canceled.
Analysts with Tudor, Pickering, Holt & Co. (TPH) said the acquisition was a long-awaited transaction that streamlines Dallas-based Energy Transfer's structure while also alleviated overhang.
A slew of pipeline operators including Enbridge Inc. (NYSE: ENB), Williams Cos. Inc. (NYSE: WMB) and Cheniere Energy Inc. (NYSE: LNG) also announced similar plans for consolidation in May after a U.S. Federal Energy Regulatory Commission ruling eliminated income tax allowances for some MLPs.
"Collapse of limited partner/general partner structure and elimination of associated IDRs should assuage investor concerns on alignment," TPH analysts said in a research note on Aug. 2. "Assuming no near-term distribution revision, [the] total payout is reduced by about $800 million after adjusting for incremental units."
Under the terms of the transaction, ETP unitholders (other than ETE and its subsidiaries) will receive 1.28 common units of ETE for each common unit of ETP they own. The transaction is expected to close fourth-quarter 2018.
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