Mergers and acquisitions tend to do the obvious thing when companies engage in them: Make them larger so they can win a bigger chunk of their industry market.
While that was very much the case in 2018, some companies engaged in M&A for other reasons. Some did it to simplify their corporate structures, a common theme for this year’s dealmaking. Others did it to diversify their product mix or their geographic coverage. And still others did it to bring in cash: to pay down debt, return it to their shareholders and/or plow it into more lucrative prospects.
The Texas Lawbook took an informal poll of prominent M&A lawyers in the state to get their feedback on what they viewed as the top 10 deals of the year. Then we reviewed our own data and that of partner Mergermarket, sprinkled in a little analytical brain power of our own, looking at size and deal significance, and came up with this list.
The deals mostly, but not surprisingly, came from the oil and gas sector, from upstream to midstream to downstream. But consumer products, utilities and entertainment also share the stage. Six law firms with a Texas presence – some homegrown, some from out-of-state – worked on the 10 deals. Herewith is the list.
1. Energy Transfer Equity’s $62 billion purchase of Energy Transfer Partners
No doubt, Energy Transfer Equity’s acquisition of affiliate Energy Transfer Partners, which closed in November, was a blockbuster in terms of numbers. It involved $27 billion in stock and $35 billion in debt assumption to create a $90 billion energy infrastructure giant.
But the deal also was a continuation of so-called “simplifications” in the industry in which related midstream master limited partnerships merge to streamline structure and eliminate incentive distribution rights for some unitholders, which didn’t always please investors. A disadvantaged change in the way these entities are taxed also fueled dealmaking.
Tudor, Pickering, Holt said that the long-awaited collapse of the limited partner/general partner structure of the Energy Transfer entities and the elimination of associated IDRs should “assuage investor concerns.”
Tom Mason led the deal as general counsel of Energy Transfer Equity while Jim Wright did so as general counsel of Energy Transfer Partners.
Nineteen lawyers at Vinson & Elkins and Latham & Watkins worked on the deal, with V&E partners Lande Spottswood and Steve Gill leading their team and Latham partners Bill Finnegan and Debbie Yee doing so from their firm.
2. Marathon Petroleum’s $31.3 billion acquisition of Andeavor
The refining industry has consolidated over recent years, creating larger and larger companies. And Findlay, Ohio-based Marathon Petroleum crowned itself king with its $31.3 billion purchase of Andeavor Corp., which made it the largest refiner in the U.S. in terms of capacity.
Analysts at Jefferies applauded the strategy of scaling operations and reducing inefficiencies, saying the deal would create a coast-to-coast network and one of the largest fuel distributors in North America.
Alas, neither company used outside lawyers from Texas on the transaction, which closed in October. Andeavor general counsel Kim K.W. Rucker led the deal for her San Antonio-based company; she has since joined Marathon Petroleum’s board.
3. Dr Pepper Snapple’s $23 billion merger with Keurig Green Mountain
As part of its desire to expand beyond coffee, New England-based Keurig Green Mountain announced in January that it was picking up Dr Pepper Snapple for $23 billion, creating the world’s third biggest beverage company in the process with $11 billion in annual sales.
Analysts said the transaction – which closed in July – not only helps the companies cut expenses and overlap due to scale, it sets up better distribution channels for both, giving them a shot to better compete with goliaths Coca-Cola and Pepsi.
“Combined, the new company could have margins exceeding 30 percent by 2020, making them the industry leader and the only beverage company that manufactures cold and hot beverages,” S&P Global credit analysts Diane Shand and Chris Johnson said in a report.
Dr Pepper went with non-Texas lawyers – from Morgan Lewis & Bockius in New York – with Dr Pepper Snapple general counsel Jim Baldwin leading the in-house team. He’s stayed on as chief legal officer and general counsel of the newly named Keurig Dr Pepper.
4. Ensco’s $2.3 billion purchase of Rowan
M&A typically happens in the beginning stages of an industry recovery. Then the offshore drilling sector must be on its way, with Ensco’s $2.3 billion purchase of Houston-based Rowan Cos. that was announced in October.
The transaction came just a year after Ensco picked up Atwood Oceanics for $863 million.
The all-stock deal – which is expected to close in the first half of next year – creates the largest offshore driller in the industry with an enterprise value of $12 billion.
Ensco will end up with the sector’s second largest fleet of high-spec floaters and largest number of jack-up rigs. But the deal also gives it a more diverse customer base, including most of the largest holders of offshore reserves, and the broadest geographic presence of any offshore driller, with operations in the Gulf of Mexico, Brazil and West Africa, among other places.
Analysts at Tudor Pickering Holt called the deal a “beautiful combination” from a strategic perspective, with Rowan gaining immediate scale and breadth in the ultra-deepwater market and significant contract backlog while Ensco regains its position as a top global jackup player.
Norwegian energy research firm Rystad expects that the offshore industry will continue its slow and steady recovery next year, with 100 offshore projects authorized for 2019, versus only 43 in 2015, and $210 billion expected to be spent on services.
While both entities are U.K. headquartered, both companies have management teams in Houston and the deal involved Texas lawyers on both sides.
Gibson, Dunn & Crutcher counseled Ensco led by corporate partner Tull Florey in Houston, who had done M&A work for the company in the past.
Ensco’s in-house team included the company’s general counsel in London as well as senior legal counsel Davor Vukadin in Houston.
Kirkland & Ellis counseled Rowan led by the recently hired corporate partner Sean Wheeler from Latham & Watkins. Wheeler also had previously worked with Rowan and Ensco on deals.
Rowan general counsel Mark Mai led the deal with help from his right-hand man, senior counsel Ryan Tarkington.
5. RSP Permian’s $9.5 billion sale to Concho
As oil prices moved upward earlier in the year, so did a wave of mergers between oil and gas explorers and producers. Concho Resources’ $9.5 billion purchase of RSP Permian announced in March was the first big one out of the gate.
The combination also was the largest M&A deal in the history of the Permian Basin in West Texas and New Mexico – and created the largest unconventional shale producer in the region.
Williams Capital Group analyst Gabriele Sorbara said the transaction made sense for Concho, expanding its Permian Basin position with contiguous core acreage that added synergies, which are expected to reach more than $2 billion. The deal closed in July.
Travis Counts, general counsel of Midland-based Concho, turned to Texas lawyers at Gibson, Dunn & Crutcher for outside counsel, including oil and gas partner Michael Darden and corporate partner Hillary Holmes. Sullivan & Cromwell also advised.
6. CenterPoint’s $8 billion purchase of Vectren
Houston natural gas utility CenterPoint Energy jumped across state lines as part of a continuing consolidation of its sector, agreeing to pick up Indiana natural gas utility Vectren in April for $6 billion.
The combination, which is expected to close early next year, will have more than 7 million customers in eight states with $29 billion in assets and $27 billion in enterprise value.
The parties expect the merger to create an energy delivery, infrastructure and services leader that will enhance growth opportunities for both businesses.
Williams Capital Group analyst Chris Ellinghaus said Vectren makes sense for CenterPoint as a replacement for the midstream assets it spun off and for the utility’s geographic diversity, with a reasonable premium that’s less than some for other deals in recent memory.
CenterPoint general counsel Dana O’Brien – who will continue in her position – reached out to Akin Gump Strauss Hauer & Feld for outside legal advice, with Houston energy partner W. Robert Shearer leading the deal team.
A Baker Botts partner in New York led the team representing Vectren but Houston M&A and capital markets partner James Mayor took part.
7. Encana’s $7.7 billion acquisition of Newfield
Canadian oil and gas giant Encana reached across a national border in November when it announced it would pick up The Woodlands-based Newfield Exploration Co. for $7.7 billion.
The deal – which was the third billion-dollar-plus oil and gas merger announced that week – will expand Encana’s access to the U.S.’ prolific oil and gas basins, including the Permian and Oklahoma’s Stack/Scoop play in the Anadarko Basin.
“We believe this combination is very favorable to the buyer, as the deal provides a core position in the Stack/Scoop play at an attractive valuation,” Williams Capital analyst Gabriele Sorbara said at the time.
Encana claimed that the transaction will make it North America’s second largest producer of unconventional resources. The deal is expected to close in the first quarter.
Kirkland & Ellis counseled Newfield along with Wachtell, Lipton, Rosen & Katz. The K&E team was led by Houston corporate partner Sean Wheeler, who had joined the firm in July from Latham & Watkins.
Newfield’s in-house counsel on the deal were assistant general counsel Ben Paul, who previously worked with Wheeler at Latham and Baker Botts; and assistant general counsel Meghan Eilers, who previously was in the legal department at Noble Energy for 10-plus years. Newfield didn’t have a general counsel at the time of the transaction.
Paul, Weiss, Rifkind, Wharton & Garrison and Blake, Cassels & Graydon counseled Encana.
8. Nexstar’s $6.4 billion purchase of Tribune Media
Second time was the charm for Nexstar, which agreed in early December to buy TV station owner Tribune Media for $6.4 billion.
The transaction will make Irving-based Nexstar the largest TV station owner in the U.S. with 216 stations in 118 markets.
“We think this is a transformative deal for Nexstar that should greatly increase its scale on financially attractive terms,” RBC Capital Markets analyst Leo Kulp wrote in a note.
Nexstar initially bid for Tribune Media in May 2017 along with Sinclair Broadcast Group, which ended up winning the auction with an offer of $3.9 billion.
But two months later, U.S. Federal Communications Commission chairman Ajit Pai ordered a hearing on the deal because of fears that Sinclair would sell stations to related parties in order to meet federal regulatory limits on TV market ownership but still maintain control.
Tribune terminated the transaction and relaunched the sale process in September, and Nexstar came in with the winning bid (Apollo Global Management is said to have submitted an offer that was less-than-a-dollar lower but could close sooner with less regulatory risk).
Nexstar estimates that the combined company will reach around 39 percent of U.S. television households after anticipated divestitures and the FCC’s UHF discount.
Nexstar general counsel Elizabeth Ryder led the deal with the help of attorneys at Kirkland & Ellis outside of Texas and Wiley Rein.
Ryder has regulatory teeth: Before joining Nexstar in 2009, she was counsel at Drinker Biddle & Reath in Washington, D.C., where she handled legal and regulatory matters for several broadcasting clients, including Nexstar, for almost six years. She also interned at the FCC.
Tribune Media used Debevoise & Plimpton and Covington & Burling.
9. Chesapeake’s $4 billion purchase of WildHorse
Oklahoma oil and gas producer Chesapeake Energy Corp. surprised industry observers when it announced its $4 billion purchase of WildHorse Resource Development Corp. in October.
The reason? Chesapeake had struggled over the last several years with a heavy debt load accumulated from a land grab by late CEO Aubrey McClendon, making the company more a seller than a buyer of assets.
The company also had a heavy focus on natural gas, whose prices have been depressed for years, given high supply from new discoveries around the U.S. but not enough demand.
But Chesapeake had worked to turn the situation around: eliminating $12.2 billion in debt; reducing capital expenditures by $12 billion; removing $1 billion in capital costs, and erasing $10.3 billion in midstream and downstream commitments. It also turned a $60 million profit in the third quarter versus a $41 million loss in the same period last year.
So the seller became a buyer. When the purchase of WildHorse is completed, which is expected in the first half of next year, Chesapeake’s oil production will double to 30 percent.
Seaport Global Securities analyst Mike Kelly said Chesapeake got a “heck of a deal, probably too good of a deal” from the WildHorse shareholder perspective, with the offer implying a valuation of $22.85 per share versus a net asset value he estimated at $32 per share.
WildHorse’s in-house team included general counsel Kyle Roane and assistant general counsel Brad Coffey.
Akin Gump Strauss Hauer & Feld assisted WildHorse’s largest investor, Dallas-based NGP, including partner John Goodgame. Latham & Watkins counseled another WildHorse investor, the Carlyle Group, with attorneys outside of Texas.
10. GIP’s $3.12 billion acquisition of Devon’s EnLink interests
Another surprise deal in 2018 was Global Infrastructure Partners’ $3.12 billion purchase of all of Devon Energy’s interests in publicly traded entities EnLink Midstream Partners LP and EnLink Midstream LLC in June for $3.12 billion.
Tudor, Pickering, Holt was startled that Oklahoma-based Devon unloaded its entire EnLink position. But analysts there said the sale would raise a material amount of cash to buy back stock at a deep discount to intrinsic value.
Indeed, Devon said it planned to use the proceeds to boost the size of its stock repurchase program by $3 billion to $4 billion, or about 20 percent of its shares outstanding.
Devon CEO and president Dave Hager said in a statement that the sale was a big step toward achieving the company’s “2020 Vision” to simplify its portfolio and return excess cash to shareholders.
Devon’s ownership interests include 115 million units in EnLink Midstream LLC, the general partner, and 95 million units in EnLink Midstream Partners LP, the master limited partnership.
The purchase gave GIP about 64 percent of EnLink Midstream LLC and 23 percent of EnLink Midstream Partners LP. Four months later, the two announced they were combining in a $13 billion deal.
Texas attorneys from three different firms were involved in Devon’s EnLink sale to GIP.
Charlie Carpenter led the deal team at Latham & Watkins advising GIP while Ramey Layne led the group at Vinson & Elkins counseling Devon. Simpson Thacher & Bartlett advised Goldman on the financing, including Houston partner Robert Rabalais.
Devon said the transaction will cut its consolidated debt by 40 percent and its general and administrative and interest costs by $300 million per year.
Devon has more asset sales to go as part of its $5 billion divestiture goal, including in the Permian Basin, which analysts think could fetch $1 billion, and possibly in South Texas’ Eagle Ford shale.