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Crosstex Energy, AŞ Message Board

  • hrbrown444 hrbrown444 Jun 19, 2006 9:32 AM Flag

    RE: MBO discussion on XTEX board

    link to discussion:

    rrb, I agree with your comment on the xtex board that there's no way xtex would get bought, but xtxi seems like a pretty good candidate. Here's why I think so:

    1. XTXI is corp which is easier to deal with than a gp structured as mlp MGG or a 1/2 ownership like ETE.

    2. Valuation--an obvious pre-requisite

    3. Size- XTXI is the right size for a private equity shop to buy on its own or with one partner (current mkt cap around 1.4B with recent issuance...1.75B with a 25% premium), without the need to bring in others to make it a club deal. This would allow them to put a lot of their recently raised money to work.

    4. Mgmt has a large stake in XTXI and several board directors could participate as well as Kinder/Sarofim, et al are trying to do at KMI.

    I think a buyer could easily borrow somewhere north of $700m against their xtex units and idr's--that leaves a significant cushion and plenty of growth (setting them up for the re-levered dividend play). Plus, if they didn't have to pay a dividend (which they essentially do as a public gp), they could pay down debt quickly. Another possibility would be the selling of xtex units to the public by xtxi to pay down debt.

    I don't think the probability is very high, but if buyers are looking for a gp to buy, as the article posted on the XTEX board suggested, I think XTXI is as good as any to buy.

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    • hrbrown, it has nothing to do with what you say. It has everything to do with the fundamental difference between LP and GP: you wouldn't buy out the whole of something if you could not manage it.

      That is why -under normal circumstances- you would never buy the LP without the GP or why you would buy the GP and leave the LP as-is.

      • 1 Reply to geoequities
      • You don't take the MLP private because you need the MLP as a means to constantly tap the equity markets. Any time you see an MLP and the GP being bought, the GP is almost always bought by the other MLP(and essentially dissolved) and usually bought with cash. The MLP that is being acquired usually has its MLP units converted to the acquiring MLP's units. Look when KMP acquired Sante Fe Partners and its privately held GP, look at EPD's acquisition of GTM and its GP, look at VLI's acquisition of KPP and KSL(the GP), look at PAA's acquisition of PPX and its privately held GP.

        As geo points out, the GP is the key to the MLP, you would shoot yourself in the foot if you took the MLP private, because that would eliminate cheap equity, furthermore, you have to have control of the GP to be able to grow the MLP.

        For this reason, I suspect that if you are looking for premiums, the real premiums will come from owning a GP that is being bought, not by holding the MLP. Exceptions occur, for example, TLP has been on a tear since SemGroup and Morgan Stanley are dueling it out for control of TMG (the GP). Obviously, it favors TLP for SemGroup to win, but either way, TLP has gained.