DCP Midstream Partners (DPM) and DCP Midstream LLC (or DCP Midstream) announced a simplification of their organizational structures by agreeing to dropdown assets at DCP Midstream to DPM. DCP Midstream LLC would transfer $424 million in cash, all of its assets, and ~$3.2 billion of debt to DCP Midstream Partners (DPM) in return for 31.1 million DPM common units. The combined partnership would have an enterprise value of ~$11 billion.
Phillips 66 (PSX) and Spectra Energy (SE) would continue to hold 50-50 interest in DCP Midstream. DCP Midstream’s ownership in DPM would increase to 38% following the completion of the transaction. Moreover, it would continue to hold GP (general partner) interest and IDRs (incentive distribution rights) in DPM.
According to Wouter van Kempen, DPM’s CEO, “The transaction benefits both our unitholders and our Owners with a simplified structure and is the logical progression following our successful DCP 2020 strategy execution to date. We’ve added fee-based margins, sold non-core assets, strengthened midstream’s balance sheet and reset the overall cost structure of the DCP enterprise to make the assets more MLP-friendly.”
Plains All American Pipeline (PAA), Crestwood Equity Partners (CEQP), and Energy Transfer Equity (ETE) also simplified their corporate structures to lower the equity cost of capital and leverage. However, DPM’s simplification doesn’t offer any such benefits.
Later in this series, we’ll look at DPM’s stock performance and assets after the combination transaction. We’ll look into DPM’s valuations, commodity price exposure, key performance indicators, and analyst projections.