Gavilon deal for $890 mln kicks off commodity trader sales

Reuters

* Gavilon has oil storage and pipelines in Oklahoma, Texas,Louisiana

* Gavilon owned by Soros Fund Management, Ospraie Managementand General Atlantic

Nov 6 (Reuters) - U.S. energy logistics firm Gavilon LLC haskicked off the first of several big trading house deals that areset to recast the market landscape in a $890 million sale topropane gas supplier NGL Energy Partners LP.

The deal, which came in less than the estimated $1 billionvalue of the firm a year ago, highlights the ongoing scramblefor U.S. energy assets amid a surge in shale oil output that hasupended domestic markets - and also the buying power oftax-advantaged master limited partnerships like NGL.

The deal gives the three-year-old NGL a modest but potentplatform of infrastructure and assets, including 8 millionbarrels of owned and leased oil storage tanks in Cushing,Oklahoma; a Gulf Coast pipeline and terminal network; and leasesfor some 200 trucks, 350 railcars and eight barges.

"This fills some of the gaps we had at NGL around storagehubs like Cushing and some feed-based pipeline businesses,"David Kehoe, executive vice president at NGL, said on a callwith analysts on Wednesday.

"We will be integrated along the crude oil midstream chainthroughout North America from the producer to the refiner andend user."

The deal also provides an exit for hedge fund manager DwightAnderson's hedge fund Ospraie Management, which alongside a fundowned by George Soros and General Atlantic, established Gavilonfive years ago after buying the cross-commodity trading divisionof ConAgra foods for $2.8 billion.

The Gavilon energy arm was put on the block after the restof the merchant was bought earlier this year by Japan's MarubeniCorp for $2.6 billion. That value was marked down from$3.6 billion after carving out the energy portion.

The deal will heighten the focus on a handful of othertrading houses that are also seeking buyers, including globalphysical energy trader Hess Trading (Hetco), the physicalcommodities arm of JPMorgan Chase & Co and MorganStanley's global oil, power and gas business.

NGL said it would retain Gavilon's personnel, which includesa substantial trading operation.

Gavilon also markets or supplies some 94,000 barrels per day(bpd) of gasoline and diesel, and another 9,000 bpd of ethanoland biodiesel, NGL said in a presentation.

RISE OF MLPs

The deal will expand the terminal business for NGL, a MLPwhich sells propane to residential, agricultural and industrialcustomers and provides related storage to retailers, wholesalersand refiners.

Many energy companies have recently created tax-efficientMLPs, which allow companies to raise money in the stock market,while having income taxed only at the unit holder level,avoiding corporate income taxes.

Gavilon LLC mainly operates integrated oil storage, terminaland pipeline assets in Oklahoma, Texas and Louisiana and has acomplementary crude oil and refined products supply, marketingand logistics business, NGL said.

Gavilon was previously part of Gavilon Group, whoseagriculture business stored and distributed agriculturalproducts to food manufacturers and farmers.

The purchase price, which represents about 7.5 timesGavilon's estimated run-rate earnings before interest, taxes,depreciation and amortization for 2014, includes about $200million of working capital, it said.

NGL said it would sell about $240 million of common units ina private placement and expects to use the proceeds to fund partof the acquisition.

The company also increased its revolving loan facility by$621 million to $1.67 billion, part of which it said would beused to fund the purchase. The deal is expected to close inDecember.

UBS Investment Bank was NGL's financial adviser and LockeLord LLP was its legal counsel. Barclays advised Gavilon and thesellers on financial matters. Jones Day and McGrath Northprovided legal advice to Gavilon.

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