Regency Energy Partners LP (RGP:US), a pipeline partnership controlled by billionaire Kelcy Warren’s Energy Transfer Equity LP (ETE:US), agreed to buy PVR Partners LP (PVR:US) for about $3.88 billion in stock and cash to expand its natural gas transport and processing capabilities.
PVR holders will get 1.02 common units of Regency for each unit they own and a one-time cash payment estimated at about $40 million in total, the companies said in a joint statement today. The $28.68-per-unit offer represents a 26 percent premium based on yesterday’s closing prices. Dallas-based Regency will assume about $1.8 billion of debt.
The transaction, expected to close in the first quarter, will extend Regency’s operations into the Marcellus Shale, the largest U.S. shale-gas basin, the Utica Shale in Ohio and the Granite Wash fields in Texas and Oklahoma, Chief Executive Officer Michael J. Bradley said in the statement.
“The size and scope of the combined enterprise will be highly beneficial to our unitholders, offering added diversification and critical mass,” William H. Shea, CEO of Radnor, Pennsylvania-based PVR, said in the statement.
Bradley will lead the combined company, which will keep its headquarters in Dallas.
PVR, formerly owned by Penn Virginia Corp., had dropped 12 percent this year before today after reporting delays in producer connections to its pipelines during the second quarter. The partnership reached a 52-week high of $28.93 on July 19. The units jumped 13 percent to $25.75 in New York, their biggest one-day gain since August 2011.
Regency fell 8.6 percent to $25.44, the steepest decline since August 2011. Energy Transfer Equity gained 1.9 percent to $66.11.
PVR expanded its Marcellus holdings last year with the $1 billion purchase of Chief Gathering LLC. It created Class B units for Riverstone Holdings LLC, which helped fund the deal.
Mergers and acquisitions are the fastest way for gas pipelines to grow now, Warren said in a September interview. Warren’s Energy Transfer owns the general partner that controls Regency and is the partnership’s largest shareholder, according to data compiled by Bloomberg.
“You’re going to see the resumption of some kind of M&A strategy that we deliberately shelved for quite a period now,” the 57-year-old Texan said Sept. 24 in his Dallas office. He acknowledged getting a reputation as a deals-obsessed “cowboy” after leading a $13 billion buying spree in 2011 and 2012 that made Energy Transfer Partners LP the third-largest gas pipeline company.
“Ultimately, this is going to benefit the whole Energy Transfer complex,” Ethan Bellamy, a Denver-based analyst for Robert W. Baird & Co., said today in a telephone interview. Payments by Regency to Energy Transfer Equity will increase once the affiliate issues the new units.
Expanding Regency makes its takeover by Energy Transfer Partners more probable, he said. Bellamy rates Regency and Warren’s other enterprises at hold and doesn’t hold the stock.
Although Energy Transfer once had a “stated goal” to take over Regency, “right now there are no plans” for this to happen, Bradley said today on a conference call with analysts.
Bank of America Corp. and UBS AG advised Regency, with legal advice from Baker Botts LLP. Citigroup Inc. and Evercore Partners Inc. were PVR’s financial advisers, with Vinson & Elkins LLP as legal counsel.
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