On Oct 14, 2013,
PVR Partners, L.P.
) unit price increased 2.9% to $ 26.50 per unit from the closing
price of Oct 10. Improvement in unit price was primarily due to
the announcement of acquisition of the partnership by
Regency Energy Partners LP
) on Oct 10, 2013.
Regency Energy announced that the board of directors of both the
entities approved the deal to acquire PVR Partners for
approximately $5.6 billion. The transaction is expected to be a
unit-for-unit transaction, with a one-time cash payment to the
PVR unitholders. The transaction is expected to be settled in
first-quarter 2014. Post deal, the combined entity will be named
Regency with headquarter in Dallas.
Per the agreement, the unitholders of PVR Partners' common units,
Class B units and special units will get 1.020 units of Regency
Energy common unit in exchange for each common unit of PVR
Partners. The unitholders of PVR Partners will also obtain
one-time cash payment at closing of the merger which is
calculated to be approximately $40 million in aggregate. The rate
of common unit will be $28.68, calculated on the basis of
trailing 10-day average closing price of PVR Partners' common
units through Oct 9, 2013.
We believe that the transaction will create a win-win situation
for both the organizations. We are concerned about PVR Partners'
current debt level along with a declining cash position. As of
Jun 30, 2013, the fair value of PVR Partners' fixed-rate debt was
$1.3 billion, up from $0.9 billion as of Dec 31, 2012. The
partnership had a cash balance of $13.9 million as of Jun 30,
2013 versus $14.7 million as of Dec 31, 2012. In addition, the
partnership issued both senior notes and common units in the last
six months, which will subsequently increase future cost of
funds. As per the merger-related agreement, Regency Energy is
expected to service PVR Partners' existing debt with an
allocation of $1.8 billion, which will help PVR Partners to
manage its debt burden.
Regency Energy Partners is engaged in gathering and processing,
and transportation of natural gas and transportation,
fractionation and storage of natural gas liquids. We note that
the proposed acquisition will enable Regency Energy to leverage
PVR Partners' properties in Appalachia and the Mid-Continent
region while strengthening as well as diversifying its footprint
in the South Texas, Permian Basin and North Louisiana. Further,
this acquisition will help Regency Energy to serve more number of
petroleum companies, which operate primarily in the Permian
Basin, and Eagle Ford, Marcellus and Utica shale plays.
PVR Partners currently has a Zacks Rank #4 (Sell). However, other
stocks from the industry that are presently performing well
EQT Midstream Partners, LP
Kinder Morgan, Inc.
), each with a Zacks Rank #1 (Strong Buy).
EQT MIDSTRM PTR (EQM): Free Stock Analysis
KINDER MORGAN (KMI): Free Stock Analysis
PVR PARTNERS LP (PVR): Free Stock Analysis
REGENCY ENERGY (RGP): Free Stock Analysis
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