Enterprise Products Partners LP, the biggest U.S. pipeline partnership, offered to reacquire former subsidiary Duncan Energy Partners LP in an all-stock deal that values the company at $2.41 billion.
Duncan Energy holders would get 0.9545 unit of Enterprise for each unit they own, under the proposal made to the board of Houston-based Duncan Energy’s general partner, the companies said today in separate statements. The $41.71-a-unit offer represents a 28 percent premium based on Duncan Energy and Enterprise’s closing prices yesterday.
Enterprise, which sold units of Duncan Energy in a 2007 initial public offering, is seeking to buy the 42 percent of the company it doesn’t currently own. The deal would be Houston- based Enterprise’s third and smallest consolidation in the past two years of other pipeline businesses started by Texas billionaire Dan L. Duncan, who died in March at 77.
“It’s an opportune time and strategically the deal makes sense,” said Bernard Colson, a Kansas City, Missouri-based analyst for Oppenheimer & Co. who rates Enterprise units “outperform” and owns none. “This is an easy deal to do for them, because they don’t have to make any assumptions about the assets.”
Duncan Energy had its biggest gain since 2008, rising $7.79, or 24 percent, to $40.35 at 10:58 a.m. in New York Stock Exchange composite trading. Enterprise fell 30 cents to $43.40.
Enterprise controls Duncan Energy’s operations through 100 percent ownership of its general partner. Enterprise purchased its own general partner, Enterprise GP Holdings LP, for more than $8 billion in November. It bought Teppco Partners LP for about $3.3 billion in October 2009.
The acquisition of Duncan Energy is “like cleaning up something that the Duncan family already owned a lot of,” said Jim Glickenhaus, general partner of Glickenhaus & Co. in New York, who manages about $324 million including about 2.95 million Enterprise units as of Dec. 31. “They may just want it simpler.”
Duncan Energy sold units for $21 each in a January 2007 initial public offering that valued the company at $435 million.
Based on the 20-day moving average of Duncan Energy’s unit price, Enterprise’s 28 percent premium offer is more than the 24 percent average premium for 187 U.S. pipeline company takeovers in the past five years, according to Bloomberg data.
“The timing and the premium took us somewhat by surprise,” said Darren Horowitz, a Houston-based analyst for Raymond James & Associates Inc. who rates Enterprise units “strong buy,” Duncan Energy units “outperform” and owns neither. “We’d have thought Enterprise would wait until Duncan was relatively cheaper.”
Duncan Energy owns stakes in more than 9,400 miles (15,000 kilometers) of natural-gas pipelines. It owns 66 percent and Enterprise owns 34 percent of a 249-mile pipeline being built into Louisiana’s gas-rich Haynesville shale region. Horowitz said he’d expected Enterprise to wait for debt from the project to weigh down Duncan Energy’s unit price before buying.
Enterprise, which gained 35 percent in the past year, has 50,200 miles of pipelines. As master-limited partnerships, or MLPs, both Enterprise and Duncan Energy are exempt from some taxes and pay out most cash flow to unitholders.
More acquisitions of MLPs by MLPs are probable, said Barrett Blaschke, a Dallas-based analyst for RBC Capital Markets.
“This is a great time for MLPs to be making acquisitions or building, whichever makes more sense,” said Blaschke, who rates Duncan Energy units “outperform” and owns none. The stock market is snapping up MLP units to get cash yields and debt is relatively cheap on an historic basis, he said.
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