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Cheniere Energy to Buy Remaining Stake in CQH for ~$1 Billion

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Oct. 3 2016, Updated 11:45 a.m. ET

Cheniere Energy’s buyout proposal

Cheniere Energy (LNG), the first US LNG (liquefied natural gas) exporter in the lower US 48 states, is looking to simplify its organizational structure by acquiring its remaining stake in Cheniere Energy Partners LP Holdings (CQH). In an all-stock deal valued at ~$1 billion, the company intends to acquire publicly held CQH shares that it doesn’t already own.

Cheniere Energy has offered ~0.51 shares of Cheniere Energy for each publicly held share of CQH. Currently, LNG owns 80.1% in CQH, while the remaining 19.9% is held by public shareholders.

The transaction is tax-free for both Cheniere Holdings and Cheniere Energy. It’s expected to close by the first quarter of 2017.

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How Cheniere Energy benefits

The proposed transaction might result in a dilution of Cheniere Energy’s existing shareholders. However, this might be offset by the following long-term benefits:

  • Cheniere Energy would receive higher distribution payments from Cheniere Energy Partners (CQP) due to increased ownership in CQP. Currently, Cheniere Energy indirectly holds ~44.8% of CQP. Its limited partner interest would increase to 55.9% in addition to the 2% general partner interest and IDRs (incentive distribution rights) it already owns in CQP. Cheniere Energy Partners owns the Sabine Pass LNG assets.
  • The transaction would simplify the organizational structure, resulting in a typical MLP–HoldCo (holding company). Please refer to the above chart for the simplified organizational structure.

In the next part of this series, we’ll see what the stock price reactions were after the announcement of the organizational restructuring. We’ll also see the benefit of this transaction to CQH shareholders.

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