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Enterprise Products Partners L.P. Message Board

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  • goto_gofer goto_gofer Jul 1, 2009 9:00 PM Flag

    Dan Duncan forgoing distributions on some shares

    The Forbes article is correct. I clipped this from the company website. I hadn't seen this before. Are the "B" shares sellable?

    "An affiliate of EPCO, Inc., a private company controlled by Dan L. Duncan, will exchange its 11,486,711 TEPPCO units for 14,243,521 Enterprise units, based on the 1.24 exchange rate, which will consist of 9,723,090 Enterprise common units and 4,520,431 Enterprise Class B units. The Enterprise Class B units will not be entitled to regular quarterly cash distributions for the sixteen quarters following the closing of the merger. The Class B units will convert automatically into the same number of common units on the date immediately following the payment date of the sixteenth distribution following the closing of the merger. The total distributions forgone by the Class B units would be more than $40 million based on expected increases in the cash distribution rate for Enterprise’s common units during this period. The Class B units will be entitled to vote together with the common units as a single class on partnership matters."

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    • Hi All,

      Who would buy "B" shares? If they are the same in every way, except they don't have a distribution for 16 quarters, why would anyone buy them when they could, just as easily buy the "A" shares. It would be dumb to willingly forgo the distribution. It is clear to me that Dan Duncan intends to hold them.

      Long TPP, EPE

      • 1 Reply to ACE_IV
      • "B" shares might have a value equal to the following -

        "A" share market price
        less -
        Expected present value of distributions for 16 quarters
        and a risk factor.

        Example --

        Current EPD market price - $25.05

        Est dist of $2.15/yr (assume dist increases offset present value effect, or a net reduction in value of $8.60).

        Risk factor reduction to reflect lack of marketability (unregistered units) and risk of accepting a security with no cash flow for 16 qtrs - wild guess of at least a net deduction of $1.45.

        Result is a value of "B" units accepted by Mr Duncan of no more than $15.00.

        I agree thatiIt is clear that Dan Duncan intends to hold the "B" units. It is a clear demonstration of his commitment to this transaction.

    • "Are the "B" shares sellable?"

      Probably not without a registration statement. I also suspect other restrictions apply, protecting EPD and Mr. Duncan.

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