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Magellan Midstream Partners LP Message Board

  • jrad52 jrad52 Mar 3, 2009 6:37 PM Flag

    Restructuring

    I posted this on MGG as well. Too lazy to write 2 original things.

    MMP proposes to acquire MGG for 65% of a unit of MMP for each MGG unit. At today's closing prices, that's a $ 4 pop to MGG's price. No idea where MMP will trade tomorrow, so maybe the premium goes away (in today's market, high probability), but the distribution (65% of MMP's $ 2.84, or $ 1.84) is still 40 cents higher than MGG's current distribution.

    With my luck, MMP will drop enough so that I lose the same amount on MMP that I make on MGG.

    But at least it's news that isn't terrible. That's something.

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    • There is no such thing as the "long term" (did I quote you right?)...only a sequence of short terms.

    • I understand the potential long-term merits of the plan, and I am in favor of simplifying the capital structure of the MLP. I do think, however, that management should have been more cognizant of likely market reaction to a level-at-best 2009 distribution for MPP given the fact that distributions have risen every quarter since inception. In a market as skittish as we operate in today, this waved red cautionary flags. I fully appreciate that this management team has the intelligence and integrity not to succumb to the whims of Wall Street, but the trade-off, in my opinion, was too heavily weighted towards MGG. A slightly lower premium could have, at a minimum, assured a steady 2009 distribution, and best case netted another small increase.

    • If I owmed the general partner, I would rather keep it intact with the 50% split raising my income dramatically in the next three to five years. I am concerned that perhaps the general partner and the LP management know something I don't about prospects, because if they were good, why sell now in a crappy market?

    • The purpose isn't to streamline things. The purpose is to take equity from MMP and give it to MMG. We're making management rich. MMG is supposed to be managing MMP and now they've decided sell itself to MMP at a price 25% over market. It's like selling $100 to someone for $125 and telling them it's to simplify things. MMP just got suckered.

    • 1) It would appear from "Statistics" on this site that the ratio of debt to net income plus depreciation will result in apx. 4.6 years verses previous 3.5 years to pay down due to the transaction. This is because MGG apparently had a much higher debt to net income plus depreciation ratio.

      2) Considering the size of share count, I figure 25% extra in the "price" for MGG will result in 6.25% earnings dilution to start.

      3) There is no advantage to taking in MGG so far as the split is concerned because the percentage of split going to MGG was all ready max'd out. There remains, however, the 25% premium disadvantage.

      4) I notice that some of the largest "major holders" (on this site) have shares in both entities, so to that extent they might be agreeable for that reason.

      Check any facts for yourself. This is food for thought. If anyone cares to flesh it out that would be really, really nice. I still haven't listened to the conference call. Could be buy time, but what if it comes back to hit me.

    • 1) It would appear from "Statistics" on this site that the ratio of debt to net income plus depreciation will result in apx. 4.6 years verses previous 3.5 years to pay down due to the transaction. This is because MGG apparently had a much higher debt to net income plus depreciation ratio.

      2) Considering the size of share count, I figure 25% extra in the "price" for MGG will result in 6.25% earnings dilution to start.

      3) There is no advantage to taking in MGG so far as the split is concerned because the percentage of split going to MGG was all ready max'd out. There remains, however, the 25% premium disadvantage.

      4) I notice that some of the largest "major holders" (on this site) have shares in both entities, so to that extent they might be agreeable for that reason.

      Check any facts for yourself. This is food for thought. If anyone cares to flesh it out that would be really, really nice. I still haven't listened to the conference call. Could be buy time, but what if it comes back to hit me.

    • ....Horowitz, however, said the transaction will be beneficial for both set of unitholders in the long term.

      He said the combined entity had now a more streamlined model, with greater opportunity to rationalize costs and extract synergies, in addition to remaining very financially flexible, with revolving credit of about $480 million......

      if quote somebody, do it right.

    • Absurd... Paying a 25% premium is just stealing our money and putting it in management's pocket....

      "The transaction will initially prove dilutive to existing MMP unitholders, as the increased unit count more than offsets the benefit of previous MGG cash flow that will now be retained," Raymond James analyst Darren Horowitz wrote in a note to clients.

    • Eliminating the "general partner" is a good move IMO. This erases the necessity of reviewing projects and decisions from two viewpoints. I have a holding in Markwest (MWE) which has done the same thing. I expect other MLPs to simplify their management structures in the future.

 
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