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  • marklibera marklibera Apr 26, 2012 10:52 AM Flag

    Propane sale math

    But they are trading the propane business in exchange for those shares, so it's not the same as a dividend. And to answer your other question, the 13.7 mm shares were valued at the time of the deal at approximately $600 mm. SPH shares don't necessarily have to tank even with the dilution and added debt (I don't think APU shares tanked when they bought ETP's propane business and in fact, APU just raised their distribution -- it just depends on whether they view the deal as accretive (from SPH's view).

    I agree with the later poster that it should be characterized as a tax-free exchange, but it's something to double-check.

    Obviously, the market doesn't agree with my initial assessment of the deal as the stock was up this morning. NRGY is essentially left with its GP and units in NRGM and very little debt. Publicly traded GP's generally trade at much lower yields than their MLPs so maybe that's what is going on, but remember that NRGY bought out its gp a. I'll have to read some analysts reports to get their take.

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    • Sure its not the same as a dividend unless one values the retail propane business as 0 (which it appears that many investors/analysts have). But you are correct, it is not a divy/dist.

      You are probably correct on the 13.7m shares. Hopefully, SPH won't tank between now and the sale, although they are quadrupling debt and diluting huge.

      Tax free exchange? Not sure how. I own APL and owned it when they sold their Eagle Ford facility. I need to see how that was handled. BTW, that sale resulted in a massive reduction in debt for APL and the price doubled shortly after. Their stock price had suffered prior to that due to the huge dept, much the same as NRGY.

      Note that NRGY did not move all of its midstream business to NRGM, only NGL storage facilities in the Northeast and NG pipeline in NY and Pennsylvania. They still have wholesale propane, and West Coast storage, etc. Also, NRGY still owns 79% of NRGM. My point is that it's not JUST a GP. There is lots of value left, especially in the NGL area which is going to expand in the US and abroad. They are setting themselves up to operate in the sweet spot. At least that's my take.