Tallgrass Energy shareholders on April 16 backed a buyout by a group led by Blackstone Infrastructure Partners that valued the U.S. oil pipeline operator at $6.3 billion, a rare case of a pre-market crash deal going ahead without a price cut.
Terms were struck ahead of this year's collapse in energy prices that has U.S. oil producers cutting output and pipeline operators reducing their fees to hold onto dwindling business. About 30% of global fuel demand has been lost from business shut downs to combat the coronavirus pandemic, hitting high cost U.S. shale producers the hardest.
Tallgrass shares would have dropped to $8 apiece had Blackstone walked away from the deal, estimated Ethan Bellamy, a senior equity analyst at Robert W. Baird & Co. The stock traded on April 16 morning at $22.35.
The pipeline's former owners "are getting a better deal than they otherwise would in this turmoil, but it doesn't mean Blackstone investors will suffer," he said. The new owners likely view the turmoil as transitory and may use Tallgrass to build a larger business through acquisition, Bellamy said.
The Blackstone group previously acquired a 44% stake in Tallgrass and in August offered $19.50 apiece for the remaining shares. Four months later, it sweetened the bid to $22.45 a share after big holders criticized the original offer.
Sticking with the pre-crash price spared Blackstone from having to write down the value of existing holdings, said Simon Lack, managing director of investment firm SL Advisors, which focuses on pipeline and other energy infrastructure deals.
It continued with the deal even after other pre-crash deals were renegotiated. Banpu Kalnin Ventures (BKV), a Thailand-based investment group, this week shaved 25% off its $770 million deal for Devon Energy Corp. Barnett Shale assets. Private equity firm Bayou City Energy Management LLC and Mach Resources LLC earlier cut a third off a $320 million deal for Alta Mesa Resources Inc. BKV delayed closing its deal to 2021 but offered contingency payments if oil prices hit $50 a barrel before 2025.
Oklahoma pipeline operator Glass Mountain LLC last week sued shale gas pioneer Chesapeake Energy Corp. for allegedly defaulting on an oil transportation contract it had only weeks earlier renegotiated.
Tallgrass pipelines carry oil from fields in Wyoming, Colorado, and Kansas to the top U.S. storage hub in Oklahoma, and has proposed a line to U.S. Gulf Coast export markets. Co-investors in the buyout include Spain's Enagas SA and Jasmine Ventures, an affiliate of Singapore's GIC sovereign wealth fund.
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