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Boardwalk, Loews Form JV

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Boardwalk Pipelines Holding Corp., a wholly owned unit of Loews Corporation (L) and Boardwalk Pipeline Partners LP (BWP) have formed an alliance to acquire PL Midstream LLC., as per media reports. The purchase consideration of the pipeline transportation company is $625 million.

The transaction is expected to culminate by the end of the third quarter or beginning of the fourth quarter of 2012, pending closing conditions.

Boardwalk Pipelines Holding will own 67% of the JV and Boardwalk Pipeline Partners will own the remaining 33%. PL Midstream will be purchased from PL Logistics LLC, a portfolio company of private equity firm, Lindsay Goldberg LLC.

The purchase consideration will constitute Boardwalk Pipelines Holding’s $268 million for equity ownership, Boardwalk Pipeline Partners’ $132 million for its equity interest and a 5 year bank loan of $225 million.

Boardwalk Pipeline Partners believes this acquisition will support its diversification strategy as it will help it venture into the natural gas liquids business. Natural gas liquids business complements Boardwalk’s core natural gas pipeline and storage businesses.

Natural gas is usually an attractive choice because of its relative fuel efficiency, low emissions, quick construction timelines and low capital costs. There is an abundance of natural gas in the U.S. markets, resulting in lower prices. This trend is encouraging power generators to not only convert their existing plants to gas-fired ones but to build new nat-gas units. As per Energy Information Administration’s reports, 96.65 gigawatt of new electric generation will be added in the U.S. within 2009 -2015, out of which 20% will be natural gas-fired plants.

PL Midstream boasts of assets that can capitalize on the petrochemicals boom in the U. S. Gulf Coast region. Also, it has 53.5 million barrels of salt dome storage capacity that includes 11.2 billion cubic feet of working natural gas storage capacity, brine supply infrastructure and 240 miles of pipeline transportation assets. Additionally, it has fee based contracts with an average lifespan of 10 years.

In the second quarter earnings, contribution to Loews improved almost 5 times to $25 million. The improvement was fueled by higher contribution from Boardwalk HP Storage Company and the prior-year impact of an impairment charge related to steel pipe materials. We expect this acquisition to help continue delivering robust earnings by leveraging its asset position.

Both Loews Corporation and Boardwalk Pipeline Partners LP share a Zacks #3 Rank (short-term Hold rating), indicating no clear directional pressure on the stock over the near term.

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