Bloomberg News

Plains Makes $1 Billion SemGroup Bid Public After Rebuff

October 24, 2011

(Updates with SemGroup’s response in fifth paragraph, closing share prices in seventh paragraph.)

Oct. 24 (Bloomberg) -- Plains All American Pipeline LP is taking a $1 billion cash bid for SemGroup Corp. directly to the company’s shareholders, after the board rejected its offer.

Plains, the owner of 16,000 miles (26,000 kilometers) of pipelines, disclosed the $24-a-share proposal in a letter today to SemGroup’s management. The bid represents a 1.9 percent premium to SemGroup’s Oct. 21 closing price and 13 percent to the average price during the last 20 trading days.

SemGroup’s board “refused to engage in constructive discussions,” Greg L. Armstrong, chairman and chief executive officer of Houston-based Plains, said a statement. Armstrong said in the letter that SemGroup’s board had also rejected a March 2010 bid of $17 a share.

SemGroup’s board rejected Plains’s offer on Oct. 19 because it undervalues the company, Tulsa, Oklahoma-based SemGroup said in a statement.

“The proposal was opportunistic and not compelling as it fails to adequately reflect SemGroup’s bright prospects for stockholder value creation,” according to the statement. The board “is willing to consider any transaction that reflects the full and fair value of SemGroup’s current business and future prospects.”

Plains is proposing to pay a premium that is less than two other pipeline purchases announced this year. Kinder Morgan Inc. offered a 41 percent premium to buy El Paso Corp. for $21.1 billion on Oct. 16, according to Bloomberg data. Energy Transfer Equity LP agreed to pay a 48 percent premium to acquire Southern Union Co., after counteroffers by Williams Cos.

Shares Bounce

SemGroup rose 20 percent to close at $28.27 in New York, the largest gain since the company resumed trading last year. Before today, the shares had fallen 13 percent this year. Plains climbed 1.7 percent to $65.

SemGroup filed for bankruptcy protection in 2008 after $2.9 billion in trading losses. Tom Kivisto, the company’s former chairman and CEO, settled a civil lawsuit with the U.S. Securities and Exchange Commission last week, agreeing to pay $225,000 in fines and forfeit more than $1.2 million in stock to resolve allegations that he misled investors.

The company, which emerged from bankruptcy in November 2009, owns 2,800 miles of pipelines and storage terminals that can hold 18.1 million barrels of fuel, according to its website. It had a net loss of $134.5 million in 2010.

“SemGroup’s 2010 and 2011 results have consistently and materially failed to meet the performance metrics laid out in SemGroup’s plan of reorganization,” Armstrong wrote.

Raising Cash

Liz Barclay, a spokeswoman for SemGroup, didn’t immediately respond to a phone call and e-mail seeking comment. Roy Lamoreaux, a spokesman for Plains, declined to comment beyond the news release.

SemGroup has proposed raising $181.2 million from selling shares in Rose Rock Midstream LP, a master-limited partnership it would form and control that would own oil pipeline and terminal assets in Oklahoma, Kansas and Colorado.

SemGroup announced an agreement on Aug. 31 to sell its natural-gas liquids business to NGL Energy Partners LP for about $276 million in cash and stock.

SemGroup said today that those two transactions, along with the construction of 1.95 million barrels of crude oil storage the company announced in March, will increase the company’s value.

Evercore Partners Inc. is advising Plains on the transaction, while Vinson & Elkins LLP and Morris, Nichols, Arsht & Tunnell served as legal advisers, according to the letter.

Barclays Capital Inc. and LCT Capital Llc are advising SemGroup, according to the company’s statement. Wachtell, Lipton, Rosen & Katz is providing legal advice.

--Editors: Jasmina Kelemen, Steven Frank

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Mike Lee in Dallas at Mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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