Overview of the merger
Crestwood Midstream Partners (CMLP) released its 1Q15 earnings on May 6, 2015. Its major announcement was the merger of CMLP and Crestwood Equity Partners (CEQP), the two partnerships that currently fall under Crestwood Holdings LLC. After the merger, Crestwood Midstream Partners will be delisted and become a privately wholly owned subsidiary of Crestwood Equity Partners, which will continue to trade as CEQP.
The incentive distribution rights (or IDR) of CMLP, which are currently held by CEQP, will be permanently eliminated. Crestwood Holdings LLC will continue to own the general partner of Crestwood Equity.
Benefits of the merger
The major benefits expected from the merger of the two partnerships include the following:
- The elimination of IDR will improve the cost of capital. This will allow the partnership to pursue more expansion opportunities. We’ll see how the elimination of IDRs drives reduction in cost of capital in a later article.
- There will be a simplified corporate structure. According to the Crestwood management team and as you can see in the above chart, the simplified structure will attract investors and improve the company’s credit profile due to the elimination of structural subordination in the capital structure.
- The merger will result in greater growth and stability in distributions. CEQP will cover the current distribution per unit of $0.55 and is expected to provide longer-term distribution increases to all unitholders.
CMLP investors don’t seem pleased with the benefits of the merger. This is obvious from the fall in CMLP’s stock price after the merger was announced. We’ll look at some reasons for this in a later part of this series, but first, let’s analyze CMLP’s recent performance.