24 B market cap for EPD
8.3 B buyout of EPE
Why is this not major dilution? Simple enough without all the copy and paste articles. Isn't it odd that the unit price is being held at $38.00 today? Maybe there's and exit strategy underway by the usual theives. I like EPD but not the constant suprises.
FYI, this was mentioned near the end of their press release on the merger:
"Management expects to maintain EPD’s strong distribution coverage for the foreseeable future and, consequently, currently intends to recommend to the Board of Directors of its general partner increases in the quarterly cash distribution paid to unitholders to $0.5825 per common unit, or $2.33 per unit on an annualized basis, with respect to the third quarter 2010 that is paid in November 2010 and $0.59 per common unit, or $2.36 per unit on an annualized basis, with respect to the fourth quarter 2010 that is paid in February 2011"
The math looks good to me!
Now that was the best post I have read. I was struggling to figure out what was going to happen today. I wonder then if today's likely distribution annoucement will do more than confirm what is already in the documents you read.
If one is going to suggest that others "do the math" - then I would think it is proper logic and etiquette to SHOW your math.
I have posted my math on the Investor Village MLP board at http://www.investorvillage.com/smbd.asp?mb=5028&mn=15741&pt=msg&mid=9485819
I am not an accountant and I know I have made some bad assumptions in doing two sets of figures on distribution coverage ratios post merger. I fell good about the first set of numbers I produced on the increased company payout numbers.
I know that one should wait on the full time analysts to show their numbers - but with all the fear and greed out their, there are probably investors who would like to see some calculations right dang now - out of some need to do something.
I am showing my numbers so that those who are writing that the deal is dilutive will have some competition on that issue. Their evidence will need to surpass my evidence BEFORE you need to think about selling your units. You should be listening to those critics - dilutive deals do happen. But you should also be demanding of them that they show their math.
I have owned units in EPD a long time - as have many of you. EPD has been very, very good to us. And anyone shouting DILUTION should be quick to supply their mathematical evidence - or we should vote with our star rating buttons for them to get the heck off of our [fellow EPD unit holder's] message board.
I appreciate your efforts, however, your math is wrong. You need to calculate the cash paid from EPD to EPE in the form of the GP 2% economic interest as well as the incentive distribution rights, not just looking at the number of EPE units and multiplying by the distribution (remember EPE gets cash from EPD units, the IDRs of EPD, ETE units and some DEP units). All of that money will now be retained within the new EPD.
Currently EPD pays out around $265 million to EPE in the form of IDRs (and 2% GP take). They pay out $2.30 on around 636 million EPD units. That is a total payout of $1.727 billion.
Once the deal is sealed, you will have no IDRs (saving $265 million). The 139 million EPE units convert into 208 million units, bringing the total up to around 824 million (after canceling the 21 million EPD units owned by EPE).
That brings the payout to around 1.944 billion (this assumes the $2.36 projected annualized payout that EPD has alluded to in their release).
Keep in mind that the Duncan family is defering some distributions for 5 years.
So net overall increase in cash out the door is around $144 million (before the Duncan's defer some distributions of around 60 million a year).
Also note that EPD will now own the ETE and DEP units that EPE used to own.
I am waiting for Citi research. My guess is it will be dilutive as was the MMP, BPL and NRGY acquisitions of their respective GPs... BPL and NRGY are pending.
BPL was the most expensive GP purchase because they were substantially owned by private equity guys that were not going to go away on the lower end of the range. BPL will have to do substantial asset acquisitions to fund their distribution gap that will occur after the merger according to Citi research.
LONG TERM. The lower cost of funds will be of far greater benefit. MMP's recent purchase of BP's Cushing oil storage assets combined with new planned construction at Cushing instantly makes MMP a big player in Cushing storage. MMP is also the only MLP that can consider the longest ethanol pipeline although I am leary of ethanol and the special construction/maintenance requirements for ethanol pipelines.
EPD's founding family has committed to reinvesting $200M of distributions back into EPD... that will be very helpful in dealing with near term dilution in terms of OVERALL cash flow... operating and nonoperating... but EPD has strung together some highly accretive acquisitions that are outperforming including Teppco which has become far more accretive than originally thought.
Long and short, I never worry about near term dilution issues when I believe the mgt team is top of the heap. The big question is now that EPD has decided to acquire its GP how many more GP acquisitions will occur in the next 6 months because now the cost of funds issue will loom large for all MLPs maintaining GPs going forward.
EPE gets paid 25% of DCF before you get a single penny. That will now end
EPE owns EPD shares which get retired
EPE owns ETE shares which EPD will now own.