WESTPORT, Conn., Feb. 23, 2021 /PRNewswire/ -- Today, Energy
Income Partners ("EIP") sent a supplemental letter to the Board of
Directors of the general partner of TC PipeLines, LP (NYSE: TCP)
supporting its objections to and its intent to vote AGAINST the
proposal to approve and adopt the Merger Agreement with TC Energy
Corporation (NYSE: TRP). EIP is the largest non–affiliated
unitholder of TCP, owning more than 10% of the units outstanding
and has maintained a position in the company for nearly 15
years.
A copy of EIP's letter is below. A full copy of EIP's
initial letter sent to the Board on last Friday, including
supporting analysis of its objections is available on EIP's
website, www.eipinvestments.com.
Members of the Board of Directors
c/o Secretary
TC PipeLines, GP, Inc., as the general partner of TC PipeLines,
LP
700 Louisiana Street, Suite 1300
Houston, Texas 77002
Re: TCP/TRP Merger Proposal Vote
Ladies and Gentlemen:
On Friday, February 19, 2021
Energy Income Partners, LLC ("EIP") sent a letter to the TCP Board
containing an analysis of the TC PipeLines LP ("TCP") / TC Energy
Corporation ("TRP") merger proxy statement/prospectus, dated
January 26, 2021 ("Merger Proxy"),
including elements of the Partnership Fairness Opinion issued by
the financial advisor ("Evercore"). In that letter, we
advised you of our decision to vote against the merger. The
letter also contained EIP's view that there were material
deficiencies in the information considered by, provided to, and
relied upon by the Conflicts Committee in their decision to accept
this offer.
After EIP's letter on Friday to the TCP Board, EIP has more
thoroughly reviewed TCP's Form 8-K filing with the U.S. Securities
and Exchange Commission, dated February 17,
2021, which contained supplemental disclosures to the Merger
Proxy in response to litigation surrounding the merger.
Incorporating these additional disclosures into our prior analysis,
EIP's view remains unchanged. Accordingly, we are advising you that
if the meeting is held without further considerations and with the
terms of the merger unchanged, we will vote against the
merger. In fact, we believe critical questions remain that LP
investors need answers to, such as:
- The Merger Proxy contains what appears to us to be a disturbing
and unusual fact pattern wherein the two members of the Conflicts
Committee negotiated for separate and additional Indemnification
Agreements while concurrently negotiating the exchange ratio and
other aspects of the Merger Agreement on behalf of TCP unitholders.
Why did the Conflicts Committee negotiate for legal protections
during this process over and above what was historically deemed
necessary?
- The Proxy firm ISS took the rare approach of issuing a
"cautionary support FOR" the merger as evidenced by
their flagging the merger vote as "deserving attention due to
contentious issues or controversy". We view this as an
important and notable distinction for TCP's unitholders. In fact,
yesterday, ISS reiterated their "cautionary" qualifier to their
recommendation citing EIP's letter from last Friday, February 19, 2021. Why was this caveat
left out of TCP's recent press releases to the public citing ISS'
"FOR" recommendation?
- As mentioned in our prior letter, EIP believes Evercore's
precedent transaction analysis is deeply flawed. Even using
Evercore's analysis, the additional disclosures in the 8-K provide
a mean/median EV/EBITDA transaction multiple on precedent
transactions of approximately 10x. This is 10% higher than the
proposed merger valuation multiple that equates to a 20% higher per
unit equity price than the current offer. Why did the Conflicts
Committee accept an exchange offer that was 20% below that
suggested by the data cited by their financial advisor
Evercore?
- Evercore's reliance of the valuation measure EV/EBITDA for
asset sale transactions to justify TRP's offer for TCP is
problematic.
-
- EV/EBITDA ignores the payments to the general partner in the
form of GP incentive distribution rights ("IDRs") and so depresses
the multiple. Why weren't these multiples adjusted higher
accordingly? Yesterday, Kinder
Morgan announced the partial sale of 25% of Natural Gas
Pipeline of America (NGPL) at 11.2x EBITDA. NGPL is highly
comparable to TCP assets and has no incentive payments to general
partners.
- EV/EBITDA ignores taxes and incentives to general partners
which are paid by equity holders just as interest payments on debt
and capital to sustain the business. What matters to equity holders
is earnings per share. Isn't this why long-term investors such as
Warren Buffet and Charlie Munger
have repeatedly derided EBITDA as a poor/misleading earnings
measure? Why wasn't a thorough valuation analysis of after-tax
earnings to unitholders given the same consideration as
EV/EBITDA?
- The treatment of taxes paid by unitholders in Evercore's
analysis highlighted in the 8-K was, in our view, biased and
incomplete. Evercore has reduced the value of TCP units by personal
taxes paid by those unitholders but ignored both the dividend tax
and the 15% Canadian withholding tax TCP unitholders would pay as
TRP shareholders following the merger. Why wasn't an
apples-for-apples type of valuation exercise conducted or relied
upon?
Considering the above items raised around the adequacy of the
merger consideration and fairness of the process, EIP strongly
believes the Conflicts Committee was not fully informed in their
decision to approve the merger. Accordingly, EIP
requests that the GP Board postpone the upcoming Merger Vote so
that the Conflicts Committee can re-convene to consider the
additional information that we and others have provided.
Further, it is EIP's view that the Conflicts Committee must either
1) re-open the merger negotiations to obtain a fair and reasonable
valuation for TCP LP unitholders or 2) rescind their previous
decision of recommendation to the GP Board approving the Merger;
thereby rescinding "Special Approval" of the Merger Agreement.
While EIP does not currently object in principle to the Board's
determination to pursue a merger, we believe that terms of the
proposed merger are unfair to unitholders. EIP's intention
remains to vote "AGAINST" the proposed merger of TCP and TC
Energy ("TRP") based upon our view that TRP's offer of 0.70 common
shares of TRP for each unit of TCP is inadequate and grossly
undervalues TCP's assets and existing organic growth
opportunities.
If you have any questions please contact Nandita Hogan, our Chief Compliance Officer, at
(203) 349-8232.
Sincerely,
James Murchie
CEO and co-founder, Energy Income Partners, LLC
About EIP:
Based in Westport, Connecticut,
EIP is an asset manager founded in 2003 that focuses specifically
on energy infrastructure. EIP's seven-member investment team
collectively has significant experience in the energy, pipeline,
and utility industries. As of January
31, 2021, EIP has $3.9 billion
of assets under management.
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SOURCE Energy Income Partners