In what analysts are calling a switch from a deleveraging strategy, Energy Transfer announced Monday that it was acquiring Tulsa-based SemGroup Corp. for $5.1 billion, including the assumption of debt and other liabilities.
Latham & Watkins assisted Dallas-based Energy Transfer with a Houston corporate deal team led by partners Bill Finnegan and Debbie Yee. The associates included Kevin Richardson, Dan Harrist, Madeleine Neet, Caroline Ellerbe and Ashlyn Royall.
Partners Tim Fenn and Bryant Lee with associates Jared Grimley and Michael Rowe worked on tax matters, partner Joel Mack worked on environmental issues and partner Pamela Kellet with associate Michelle Synhorst weighed in on finance. Antitrust and benefits and compensation matters were handled out of the firm’s Washington, D.C., office.
Kirkland & Ellis advised SemGroup with Houston corporate partners Sean Wheeler and Doug Bacon leading the deal team with help from associates Allan Kirk, Camille Walker, Daniel Cadis, Zach Montgomery and Adam Wojcik.
Specialists included tax partner Mark Dundon and associates Joe Tobias and Radina Angelova. Executive compensation matters were handled by attorneys in the firm’s New York office.
SemGroup used Jefferies as its financial advisor (Pete Bowden and Brian Conner) and Energy Transfer tapped BofA Merrill Lynch (Michael Cannon and David Anders).
Tom Mason led the legal work in-house at Energy Transfer, where he has worked in various units since 2007, including most recently as executive VP, general counsel and president of LNG. Before that the University of Texas law graduate was a partner in the Houston office of Vinson & Elkins.
Others on the deal were Bradford Whitehurst, executive VP and head of tax; Jim Wright, general counsel of Energy Transfer Operating; Jason Healy, associate general counsel and secretary; Robert Kerrigan III, senior VP of human resources (for HR/ benefits legal matters); and Tonja DeSloover, associate general counsel and head of litigation.
Leading SemGroup’s team was Susan Lindberg, who joined as general counsel in 2017. She previously was general counsel for the U.S. oil and gas operations unit of Italy’s Eni, assistant general counsel at Duke Energy Corp. and senior counsel at Enron Corp. The UT law graduate began her career as an associate in the energy section of Akin, Gump, Strauss, Hauer & Feld.
Assisting Lindberg was assistant general counsel Will Gault, who joined the company in 2015 after previously working as an attorney at Williams Communications. He’s a graduate of University of Kansas School of Law.
The transaction includes units and cash valued at $17 per share, a 65% premium over SemGroup’s closing price Friday of $10.28 and an 87% premium over its 20 day volume weighted average price.
SemGroup stockholders will receive $6.80 in cash and 0.7275 of an Energy Transfer common unit for each of their shares, or about 40% cash and 60% equity. The equity part of the deal will be treated as a tax-free transaction.
SemGroup shareholders are expected to own around 2.2% of Energy Transfer’s outstanding common units once the deal closes, which is expected by late 2019 or early 2020 if it clears regulators and SemGroup stockholders.
SemGroup owns pipelines, processing plants, refinery-connected storage facilities and deep-water marine terminals that can import and export. It has listed western Canada, the Mid-Continent and the Gulf Coast as its key areas of operation and growth.
The Texas Lawbook mentioned SemGroup as a possible takeout target on Jan. 7, citing a Morgan Stanley report. Others were Tallgrass Energy, which is considering a $3 billion buyout by stakeholder Blackstone Infrastructure, and Buckeye Partners, which was purchased by IFM Investors in May for $6.5 billion.
The acquisition represents a sharp reversal from Energy Transfer’s recent messaging on portfolio management, capital discipline and accelerated deleveraging, analysts at Tudor, Pickering, Holt noted in a report.
“While ET’s [Energy Transfer’s] valuation has screened attractively, we saw deleveraging and continued improvements in messaging around governance as the key gating events to attracting incremental capital,” they said.
While the acquisition offers potential for integration of the two entities’ Gulf Coast terminals, TPH called the deal a “setback” versus the progress seen in the third quarter, when the partnership reduced its capital spending for this year and indicated a willingness to evaluate asset sales.
Energy Transfer, which is led by billionaire Kelcy Warren, said the transaction will boost its scale across several regions and provide increased connectivity for its crude oil and natural gas liquids transportation businesses while not having a material impact on credit metrics. It added that the deal will increase its portion of fee-based cash flows from fixed-fee contracts and boost its distributable cash flow per common unit.
The partnership also believes the combination will help it pursue additional commercial opportunities and achieve $170 million in annual synergies, including $80 million in commercial and operational synergies, $50 million in financial savings and $40 million in cost savings.
SemGroup CEO Carlin Conner called the deal “strategically and financially compelling” and will result in SemGroup joining one of the largest midstream energy companies in the country with a strong footprint in all major U.S. production basins.
“The combined entity’s size, scale and financial profile will ensure that SemGroup’s assets, including our Gulf Coast terminal, mid-continent footprint and our Canadian joint venture SemCAMS Midstream, benefit from significant growth well into the future,” he said in the statement.
Conner said that SemGroup had been exploring strategic alternatives aimed at increasing shareholder value and determined that the combination is in the best interests of shareholders, “providing immediate value, a significant premium and opportunity to participate in the future upside of the combined business.”
SemGroup emerged from 16 months in bankruptcy in 2009 with a new corporate structure (it previously was a partnership) and a commitment to rebuild its good name with producers and creditors, company officials said at the time.
In January of last year, the company attracted $350 million as part of a private placement of convertible preferred shares to Warburg Pincus, CIBC Atlantic Trust and Tortoise Capital Advisors (Gibson Dunn & Crutcher partner Rob Little advised SemGroup and Kirkland assisted Warburg).
This past January, SemGroup formed a joint venture with KKR to create a Canadian midstream infrastructure platform with shares and assets valued at $860 million (Gibson Dunn advised SemGroup on that transaction as well with Simpson Thacher & Bartlett assisting KKR).
The platform, SemCAMS Midstream, also agreed to acquire Riverstone-backed Meritage Midstream ULC and its midstream infrastructure assets for $449 million (V&E counseled Meritage and Riverstone with a team led by partner Doug Bland).