Another simplification transaction in the midstream space
On October 9, natural gas company Antero Midstream GP (AMGP) agreed to buy its MLP subsidiary Antero Midstream Partners (AM), including shares held by Antero Resources (AR). Antero joined the league of companies that have simplified their structures—a trend that has gained ground in the midstream space in recent years.
After the transaction, the combined entity is expected to convert to a corporation and would be renamed Antero Midstream Corporation. Antero Midstream Partners shareholders are expected to receive $3.415 in cash and 1.635 shares of the new entity’s stock per AM unit owned. This implies a total value of $31.41 per Antero Midstream Partners unit. Antero Midstream Partners rallied 15.0%, and Antero Midstream GP shares surged 9.0% after the announcement.
Antero joins the league
Simplification transactions such as these usually strengthen the balance sheet, and the structure lowers the cost of equity capital due to the elimination of IDRs. This transaction is expected to reduce AMGP’s tax payments from 2019 through 2022 by ~$375.0 million.
Michael Kennedy, CFO of Antero Midstream Partners and AMGP said, “The elimination of the IDRs is expected to reduce Antero Midstream’s cost of capital which will broaden New AM’s growth opportunities beyond the previously disclosed $2.7 billion organic opportunity set with attractive project and corporate level returns.”
Antero’s peer and natural gas giant Williams Companies (WMB) simplified its organizational structure by acquiring its MLP subsidiary Williams Partners in the second quarter. Along similar lines, Energy Transfer Equity (ETE) announced an agreement to buy Energy Transfer Partners (ETP) in August.
So far this year, Antero Midstream Partners has rallied more than 15.0% while Antero Midstream GP is down about 10.0%. Antero Midstream Partners forms ~2.1% of the Alerian MLP ETF (AMLP).