Plains All American Pipeline LP (NYSE: PAA) has put $738 million on the table to buy all publically held units of PAA Natural Gas Storage LP (NYSE: PNG).
The merger would complete what has essentially been a fairly binding engagement between the two. PAA owns 46% of PNG’s issued and outstanding common units, its series A and B subordinated units and also owns PNG’s general partner and its incentive distribution rights.
A definitive agreement would need to be signed by Sept. 27.
Provided the transaction is approved by PAA’s board of directors, a conflicts committee to be established by PNG’s board, and PNG unit holders, PAA would expect to close prior to year-end, said Brian Gamble, director of research for Simmons & Co. International.
In its news release, PAA management said that while it views the long-term outlook for natural gas storage constructively, the near-term market environment will be challenging for PNG as a stand-alone entity, Gamble said.
PNG would pay a November quarterly distribution.
PNG completed its initial public offering in May of 2010 at a price of $21.50 per unit, Gamble said.
“While the partnership has executed well, it has not increased its cash distribution since November of 2011 due to challenging market conditions and few attractive opportunities for accretive acquisitions,” he said. “While the premium is modest and PNG unit holders may experience a reduction in their distribution initially, PAA may offer a more favorable growth profile.”
Gamble said the PNG acquisition would result in 14.4 million additional PAA units outstanding.
Absorbing the remaining PNG interests could provide some benefit if management uses it as a platform for growth in the natural gas sector and looks beyond storage for growth opportunities and adopts a more integrated business model,” he said.
PAA is a Delaware limited partnership engaged in the development, acquisition, operation and commercial management of natural gas storage facilities. PNG currently owns and operates three natural gas storage facilities located in Louisiana, Mississippi and Michigan. PNG is headquartered in Houston.