I agree somewhat. I think they could have issued the XTEX equity to institutions. They might have had to knock $6.00 to $7.00/unit off, but I think they could have got it done.
Yes, the dividend is going to grow tremendously. Lets not forget some of those pre-Chief projects that were on the back burner, like the downsized North LIG project and the potential South LIG project.
They also mentioned they wanted to establish a presence in the Arkansas Shale play as well as the Rockies. I think its very possible that they make a few more modest acquisitions over the next 4 or 5 years that add to the dividend. So, 5 years out, a $7.00 dividend doesn't seem unreasonable, but its pretty silly for us to project 5 years out, I have a tough time projecting 2 years out. Still, with the most likely approach to $3.60 by 3 Q 2007 being measured increases(an increase of .05/Q) over the next 6 quarters, and assuming we can squeeze out a few more Q's of growth until June 2008 when the $2.00 increase will begin(per the conference call) which will happen over 1 year (till June 2009), after that, hopefully the next phase of growth will kick in, allowing continued increases.
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.