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ETP to Merge into SXL in Unit-for-Unit Deal

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ETP to merge into SXL

Energy Transfer Partners (ETP) has agreed to merge into Sunoco Logistics Partners (SXL) in an all-stock deal according to a press release from November 21, 2016. This is the second major merger announcement in the midstream sector in 2016. Earlier this year, Enbridge (ENB) agreed to combine with Spectra Energy (SE). For more detail, read Enbridge, Spectra Energy Merger Gives Shareholders Plenty to Mull.

SXL has agreed to issue 1.5 SXL common units for each ETP outstanding unit. This implies a price of $39.29 per unit based on SXL’s stock price prior to the announcement of the transaction.

ETP and SXL unitholders both seemed disappointed with the deal, considering both stocks crashed despite the announced $200 million in expected annual EBITDA synergies. We’ll look at the stock price reactions in a later article.

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Pro forma organization structure

Currently, ETP and SXL are part of the Energy Transfer Group with Energy Transfer Equity (ETE) directly or indirectly owning their GPs (general partners). Post-merger, “the existing IDRs (incentive distribution rights) provisions in the SXL partnership agreement will continue to be in effect” as noted in a related press release. ETP’s current LP interest and ownership of Class B and Class H units would stand retired. Moreover, ETE would own 100% of the pro forma company’s GP/IDRs following the completion of this transaction. The combined partnership would continue to benefit from the earlier announced IDR subsidies to both the limited partnerships.

ETP-SXL merger timeline

The transaction is expected to close in the first quarter of 2017. The transaction is subject to approval by Energy Transfer Partners’ shareholders and other regulatory approvals.

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