Today's announcement is hardly a surprise as secondary offerings are quite common for MLP's. The proceeds from the offering will likely be used to complete the asset purchase from M2 Midstream. The M2 deal is accretive to earnings so cash distributions to unit holders should also rise.
From Schwab's web-site below: I understand the part about using it for the acquisition; but the 'part' that I find not so good is the statement about use for 'general partnership purposes'. The lack of clarity on this is bothersome as it could surely mean, go into the pockets of the folks that are general partners and not to help investors. Any other thoughts?
Enterprise Products Partners L.P. (NYSE: EPD) 2.6% LOWER; today announced the commencement of a public offering of 11,500,000 common units representing limited partner interests. Enterprise Products has also granted the underwriters a 30-day option to purchase up to 1,725,000 additional common units to cover over-allotments, if any. Enterprise intends to use the net proceeds from this offering, including any exercise of the over-allotment option by the underwriters, to pay a portion of the purchase price of its previously announced, pending acquisition of natural gas gathering assets in the Haynesville Shale area from M2 Midstream LLC and for general partnership purposes.
The "pockets of the GP" is not a general partnership purpose. General partnership purposes could be pipeline maintanance, repairing equipment or any of the thousands of things EPD spends $$ on every day.
The units are down about 2.5% because the public pricing of the units will be under the market by about that amount. To see what happens with an offering take a look at MWE and its recent offering.
This should bring EPD about $450M. With their retained cash for Q1 and Q2 that should put them needing about $450M in debt to complete the $1.2B purchase. This would mean about an $18M saving in interest on the $300M in retained earnings. Also a tiny step closer to a higher bond rating.
MWE made a similar announcement a few weeks ago and the stock dropped $1...week and a half later it was back to where it was then higher. These announcements of additional shares are easy buy opportunities.