SemGroup Corp. (NYSE: SEMG) and sibling MLP Rose Rock Midstream (NYSE: RRMS) said May 31 they will combine in an attempt to grapple with turmoil in upstream while simplifying its structure.

The all-equity merger will give Rose Rock unitholders 0.8136 shares of SemGroup for each unit of Rose Rock. At $24, the price is a 7.4% implied premium to Rose Rock’s 10-trading day, volume-weighted average closing price. SemGroup already manages Rose Rock’s businesses.

The deal is valued at $391 million in shares not including $8 million cash in fees and expenses.

“With the upstream-oriented portion of asset footprint still facing headwinds, the strategy is focused on rationalizing existing portfolio while securing additional downstream growth opportunities to backfill declines,” Tudor, Pickering, Holt & Co. (TPH) said in noting the deal.

In May, Moody’s Investors Service downgraded SemGroup Corp.’s corporate family rating.

“Both SemGroup and Rose Rock face downward pressure on throughput volumes related to precipitous declines in upstream spending and heightened counterparty risk,” said John Thieroff, Moody’s vice president.

SemGroup will retain about $1.1 billion of liquidity following the transaction, the company said.

The roll-up of SemGroup and Rose Rock “does not come as a significant surprise—and the combined entity will have a solid liquidity profile, allowing for accretive growth to materialize to holders through current growth projects and more optionality from an oil price recovery,” said Darren Horowitz and Justin Jenkins, analysts at Raymond James & Associates.

Rose Rock has outperformed its parent company by nearly 40% month to date.

The combined company will target an 8% compound annual dividend growth rate (CAGR) and dividend coverage of 1.5 times or greater through 2018. SemGroup and Rose Rock expect to maintain their current level of dividends and distributions through the closing of the transaction.

The transaction will be a taxable transaction for Rose Rock unitholders, with recognition of gain or loss in equivalent to selling their Rose Rock units for cash equivalent at the fair market value of the SemGroup shares received. SemGroup will receive tax benefits over an approximate 15-year period from the asset step-up resulting from the consideration paid to the Rose Rock unitholders.

“We are pleased to announce the combination of SemGroup and Rose Rock, which we expect will provide immediate and long-term benefits for SemGroup and Rose Rock investors,” said Carlin Conner, SemGroup president and CEO. “We expect the transaction will simplify our corporate capital structure and deliver several important benefits to our shareholders. The elimination of Rose Rock’s incentive distribution structure coupled with Rose Rock’s fee-based cash flows from strong investment-grade counterparties will help drive SemGroup’s strategic growth plans.”

The transaction has been approved by the boards of directors of the general partner of Rose Rock and SemGroup.

The transaction requires approval by SemGroup shareholders and Rose Rock unitholders, though the vote is “perfunctory as a majority of SemGroup ownership guarantees approval,” Baird Equity Research noted in a May 31 report.

SemGroup owns 56% of the Rose Rock common units. The transaction is expected to close in third-quarter 2016.

SemGroup’s financial advisers were Barclays and Citi and legal counsel was provided by Gibson, Dunn & Crutcher LLP. Potter Anderson & Corroon LLP acted as legal counsel to the SemGroup board of directors.

For Rose Rock, Evercore Group LLC acted as financial advisers and Akin Gump Strauss Hauer & Feld LLP and Morris, Nichols, Arsht & Tunnell LLP acted as legal advisers to the conflicts committee of the general partner of Rose Rock.

Darren Barbee can be reached at dbarbee@hartenergy.com.