MLP M&A Continues: ET To Acquire CEQP

Energy Transfer (ET) plans to acquire Crestwood Equity Partners (CEQP) in all-equity deal valued at $7.1 billion, including the assumption of debt and preferred securities. The transaction is expected to close in 4Q23 subject to typical approvals, including a vote by CEQP unitholders.

Energy Transfer to Acquire Crestwood Equity Partners: Transaction Details

The deal is expected to be immediately accretive to distributable cash flow per unit and neutral to ET’s leverage metrics. The unit-for-unit transaction outlines an exchange ratio of 2.07 ET units per CEQP unit. Based on closing prices from August 15, the deal does not include any premium for CEQP, though CEQP management noted that they see strong potential for ET unit price appreciation and highlighted ET’s distribution growth (see below). The transaction is expected to be tax efficient.

ET would issue approximately 219 million units as part of the transaction, implying CEQP holders would own 6.5% of the pro forma entity. ET expects to achieve $40 million in annual run-rate cost synergies in 2025+ with financial and commercial opportunities likely to provide additional benefits.

Rationale for Crestwood Equity Partners

On their call this morning, CEQP’s management highlighted the benefits of scale and diversification in the midstream business, which ET provides. They noted a greater value for CEQP’s gathering and processing assets in ET’s fully integrated system than on a standalone basis. Additionally, ET’s investment-grade credit rating (BBB- from S&P vs. CEQP’s BB) will allow access to a lower cost of capital over time, including the potential to eventually recapitalize CEQP’s debt and preferred equity. They also highlighted ET’s strong free cash flow generation.

Distribution policies were also highlighted as a key difference between CEQP and ET. With CEQP focused on deleveraging, its distribution was expected to remain flat, having last been increased in May 2022. On the other hand, ET has grown its distribution each quarter lately with a target of 3-5% annual distribution growth. CEQP holders should enjoy better prospects for distribution growth from the combined company.

Rationale for Energy Transfer

ET has been active with acquisitions over the years. Recent examples include its purchase of private company Lotus Midstream earlier this year and former MLP Enable Midstream Partners in 2021 (read more). For ET, the transaction would provide more connectivity in the Williston and Delaware basins with a new footprint in the Powder River Basin. These assets should fit well with ET’s natural gas liquids (NGL) processing facilities at Mont Belvieu, as well as its export terminals in Texas and Pennsylvania (read more). CEQP’s storage and terminal assets are also expected to complement ET’s existing NGL, crude, and refined products businesses.

Other MLP Consolidation Updates

Separately this morning, Holly Energy Partners (HEP) announced a definitive merger agreement with its parent HF Sinclair (DINO). The agreement calls for HEP holders to receive 0.315 shares of DINO stock and $4.00 in cash for each HEP unit. The consideration represents a ~2% premium to yesterday’s closing price. The cash component and slight premium are enhancements to what was initially proposed in May.

Additionally, Magellan Midstream Partners (MMP) will hold its special meeting for unitholders to vote on the pending merger with ONEOK (OKE) on September 21.

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