First, this deal had to be leaked yesterday. Secoond, here is the math the best I can figure. NRGY unitholders will get .11 share of SPH trading at $43 or about $4.73. NRGY will get another $200mm or $1.60 for each unit, but that won't be distributed. Each NRGY unit will still own about $8 in NRGM shares per NRGY unit. Bottomline, I don't think this is a premium transaction, but it doesn't account for the reduction of debt. NRGY's debt will follow the propane business to SPH, so NRGY will be almost debt free.
I'm not sure what NRGY will have left in terms of a business other than the assets that they were planning on dropping into NRGM. I would think that they would merge the two entities later down the road.
As for the distribution cut, many of the predictions were close, but it doesn't seem to matter any longer.
One thing to watch out for is what the tax consequences will be to a NRGY unitholder. Since NRGY unitholders are getting SPH units, there might not be any gain, but I would look for that in the disclosure materials. One would not like to get a surprise taxable event on next year's K-1.
Will be interesting to see the market reaction this morning. My guess is that the sale mutes the dividend cut. There might be some kind of arbitrage opportunity between NRGY and NRGM going forward.
Liza, may I ask your opinion as to whether or not it would be good for me to buy into this Co., I already hold shares or units in SPH at a loss purchased in 2010, have been holding and waiting for better days as to taking a loss, appreciate your sound advice.
"very little debt" and pure play pipeline -- melody to my senses. Great recovery from a crash in NRGY's propane demand. And the distribution has kept coming to provide for manicures during all the nail biting. Tres bien!
Sorry, not sure that I understood your math.
If NRGY unitholders are getting $600m worth of SPH, then that alone will account for $4-5/share alone. Its like a huge 1 time divy.
Yes, K-1 will have to include a huge gain.
But they are trading the propane business in exchange for those shares, so it's not the same as a dividend. And to answer your other question, the 13.7 mm shares were valued at the time of the deal at approximately $600 mm. SPH shares don't necessarily have to tank even with the dilution and added debt (I don't think APU shares tanked when they bought ETP's propane business and in fact, APU just raised their distribution -- it just depends on whether they view the deal as accretive (from SPH's view).
I agree with the later poster that it should be characterized as a tax-free exchange, but it's something to double-check.
Obviously, the market doesn't agree with my initial assessment of the deal as the stock was up this morning. NRGY is essentially left with its GP and units in NRGM and very little debt. Publicly traded GP's generally trade at much lower yields than their MLPs so maybe that's what is going on, but remember that NRGY bought out its gp a. I'll have to read some analysts reports to get their take.
I would not figure the per share part of the transaction yet. NRGY unit holders are getting $600m worth of SPH no matter what the share price is at the time of the sale. At least that is how read it. At today's SPH price that is about 40% of SPH market cap. Of course that could change.
I cannot believe that SPH is not tanking yet in premarket.