if they had knocked off $6-7/unit of xtex to get the deal done (around $29?), i think it might have been a serious drag on xtxi. depending on what you use for xtex fair value (raymond james now has $48), there would be a point where it makes sense for xtxi to buy the sub units rather than issues the xtex units to institutions.
So, if you say xtxi is worth $110, for example, and they issue xtxi shares at $72, then the discount to fair value is 35%. If xtex fair value is $44 and the equity was sold at $29, then the discount is almost 35%. So, you are selling something at a 35% discount to buy something at a 35% discount and at the same time making xtxi worth more bc of the idr's
Although more xtex units would have increased idr's, there is also the consideration of acquisition currency and the signal it sends to the market. By not over-diluting xtex and showing that mgmt believes in the deal (via gp), it might enable more deals or better pricing for future deals, but if that's the only reason for the deal it would clearly be a bad one.
You're probably right about projecting dividends being a risky proposition, but it seems to be worth thinking about how things interact to get to an estimate of what the market would value it at in the future and comparing it to estimates of value today.
I did some back calcs on the numbers and with around 100 to 115 million in cash flow, I get the same projections they give making many assumptions.
Still don't like the XTXI offering, it better be for 100% of current market price. Discounting XTEX is understandable because its subordinated and doesn't pay for $18 months. If they let the insiders buy at less than $75 or $76 it will be revealing of the TRUE culture that Barry Davis is building at Crosstex, the one he waxes poetic about on the conference calls. After all, actions speak louder than words.
We can't expect them to pay full market price. There is always a block/liquidity discount. What they discount it from might be interesting. I'd almost prefer they place the equity with institutions so it's a more arms-length transaction. As it is, the banks giving a "fairness" opinion have an incentive to lowball the value to gain favor with management. If it went to institutions, at least management would be trying to get the best price for us.
I'd hope that the market better realizes the value over the next week and xtxi trades up so the discount puts the equity in the range of $75, even though goldman sandbagged it today (7% yield on the increased dividend and 15% discount rate for the fastest growing gp? ridiculous, but they still said it was worth at least $19/share and admitted it was extremely conservative).
Was it clear to anyone whether they'd be issuing xtex units now to fund the capex of 2007-2009? That scales up the total cost associated with cheif to $634 from $480, but would require more xtxi shares issued now to buy more subordinated xtex units. I would think they'd delay that issuance until needed, but didn't see anything on it in the docs.
Last, even though we would prefer xtxi finance the deal a little differently, Davis and company are doing a great job to increase value for us and haven't had conflicts up to this point that i can remember, so on the whole i'm very satisfied.