rrb and mark, Thank you for your intelligent responses. I am bottom fishing here because I see the consolidation of the propane business accelerating with the APU/ETP deal and I think the propane business itself is or has bottomed.
Despite all the fear-mongering, people who use propane can't switch to gas unless the local utility builds a line to their home or they change to electric, both of which are very expensive propositions. I have several family members who burn propane--none of them are even considering switching. I think cut-backs because of the recession have about run their course and increased nat gas production should bring propane prices down, benefitting re-sellers like NRGY.
I can see real benefits to NRGY from the upcoming IPO, especially if their longer term objective is similar to that of ETP. A stock deal to sell their propane business to SPH after the IPO would put them in the same position today, with the bonus of the IDRs eventually coming in from the storage MLP along with distributions from SPH. And I doubt there would be tax consequences to a properly structured stock deal.
All of which gets me back to wondering what NRGY's propane business would be worth to SPH or another buyer in an all stock deal after the storage IPO is done. What do you think?
(I owned NRGP, got bought out then sold the NRGY I received in January. Now own NRGY calls, thinking of adding here.)
I would prefer the midstream biz not be IPO'd if they divest propane. NRGY just bought out the GP, so that would be a step backwards in my opinion.
Sherman would be making a third HUGE mistake to divest propane and simultaneously IPO the Marcellus midstream. Simplicity is the key. The MLPs without IDRs are easier to value, serve only 1 master and have only 1 goal, to preserve and grow the distribution.
If propane is not divested, then I would agree with IPO'ing the midstream, but only if all midstream eventually ends up in the MLP, including Tres Palacios.
The first amendment to the registration statement for the IPO of the midstream business was filed a few weeks ago. It has some of the numbers in it for the midstream business, but not the share amounts or projected dividend numbers. Still, there is a EBITDA projection. One may be able to find comparisons from some of the publicly traded storage companies and back into an enterprise valuation, then make a determination of whether NRGY stock presents an opportunity. One caution is that unlike parents of other storage companies like PNG and CHKM, NRGY really doesn't have any other midstream assets to drop into this new mlp going forward, so the new mlp will have to find them and buy them itself.
Good point re GPs and IDRs. Having eliminated NRGP, their willingness to have NRGY itself become a GP is puzzling. My guess is that the prospect of cash today and IDRs down the line outweighed their desire for simplicity and transparency. But if they're going in that direction, selling the propane business for stock to a company with half their market cap fits the logic because NRGY would probably end up with working control of SPH, just as ETP's 34% apparently gives it working control of APG, if it cares to exercise it.
NRGY has taken some major steps in the past year to position itself for...something, but I don't know what. Merely IPOing the storage business seems anticlimactic, especially given the consolidation going on in the propane industry.