- TEP public unitholders will receive 2.0
TEGP Class A shares for each outstanding TEP common unit; the
exchange ratio represents an approximate 10 percent premium to the
30-trading day volume weighted average exchange ratio prior to the
company’s Feb. 7 acquisitions and restructuring announcements
- Proposed transaction will result in
no distribution cut to TEP
unitholders, and will be accretive to TEGP shareholders and
TEP unitholders
- TEGP Class A share first quarter 2018
dividend increased to $0.4875, or $1.95 annualized
- TEP common unit first quarter 2018
distribution increased to $0.975, or $3.90 annualized
- Upon closing the proposed transaction,
TEGP will change its name to Tallgrass Energy, LP (“Tallgrass
Energy”) and will trade on the New York Stock Exchange under the
ticker symbol “TGE”
- Tallgrass Energy continues to expect
Adjusted EBITDA1 of between $755 - $835 million for 2018 and
expects dividend coverage for Tallgrass Energy in excess of 1.20x
for 2018; dividend growth for existing TEGP shareholders expected
to be between 38 – 42 percent for 2018
- Upon closing, Tallgrass Energy does not
expect to pay cash federal income taxes for a period currently
estimated to be at least 10 years
Tallgrass Energy GP, LP (NYSE: TEGP) and Tallgrass Energy
Partners, LP (NYSE: TEP) today announced the execution of a
definitive agreement pursuant to which TEGP will acquire the
approximately 47.6 million TEP common units held by the public in a
taxable stock-for-unit merger transaction at a ratio of 2.0 TEGP
Class A shares for each outstanding TEP common unit.
“We are executing this transaction from a position of
fundamental business strength, and the result is a win for the TEP
unitholders and TEGP shareholders alike. This non-dilutive
combination differentiates our transaction from most other recent
combinations in the MLP universe,” said President and CEO David G.
Dehaemers Jr.
“Eliminating TEP’s incentive distribution rights will
immediately improve our cost of capital and will enhance our
ability to compete for, and the returns generated by, acquisitions
and organic growth projects,” Dehaemers added. “In addition, our
single public entity will be more streamlined, simplified and
closely align all of our equity holders’ future financial
incentives. We expect the combined company, which will be taxed as
a corporation, will appeal to an even wider set of potential
investors. We are looking forward to closing this transaction and
focusing on the next chapter of value creation at Tallgrass
Energy.”
The merger agreement has been unanimously approved by the Board
of Directors of TEGP’s general partner, the Conflicts Committee of
the Board of Directors of TEP’s general partner (the “TEP Conflicts
Committee”) and the Board of Directors of TEP’s general partner.
Subject to customary approvals and conditions, the merger is
expected to close by the end of the second quarter of
2018.___________________1Adjusted EBITDA is a non-GAAP financial
measure. For additional information, please read “Non-GAAP
Measures.”
Transaction Details
Under the terms of the merger agreement, TEGP will acquire the
approximately 47.6 million TEP common units held by the public at a
fixed exchange ratio of 2.0 TEGP Class A shares for each
outstanding common unit. As a result of the proposed transaction,
the TEP incentive distribution rights will be cancelled, the TEP
common units will no longer be publicly traded and 100 percent of
the equity interests of TEP will be owned by TEGP’s subsidiary,
Tallgrass Equity, LLC (“Tallgrass Equity”).
In the proposed transaction, TEGP will issue an aggregate of
approximately 95.2 million Class A shares to former TEP common
unitholders, representing approximately 62.1 percent of the
outstanding Class A shares of TEGP following the transaction. The
revolving credit facilities of TEP and Tallgrass Equity, and the
senior notes of TEP are expected to remain outstanding following
the merger. Assuming the merger closes on or before the record date
for the second quarter 2018 dividend, former TEP unitholders
holding TEGP Class A shares on the record date would be entitled to
receive the second quarter 2018 dividend on the TEGP Class A shares
they receive in the merger in accordance with TEGP’s agreement of
limited partnership.
Completion of the merger is subject to customary closing
conditions, including the approval by holders of a majority of the
outstanding TEP common units, including common units owned by
Tallgrass Equity, and the expiration or termination of all waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act. As
part of the transaction, TEGP and certain of its subsidiaries
entered into a support agreement agreeing to vote their
approximately 25.6 million TEP common units (representing
approximately 35 percent of the total outstanding TEP common units)
in favor of the merger.
An investor presentation related to the transaction will be
posted on the Tallgrass Energy website. TEP unitholders, TEGP
shareholders and other interested parties are invited to view those
materials under the investor relations sections at
www.tallgrassenergy.com.
Distributions
TEGP
The board of directors of TEGP’s general partner has declared a
quarterly cash dividend of $0.4875 per Class A share for the first
quarter of 2018, or $1.95 on an annualized basis. This represents a
32.7 percent sequential increase from the fourth quarter 2017
dividend of $0.3675 per Class A share and an increase of 69.6
percent from the first quarter 2017 dividend of $0.2875 per Class A
share. It is TEGP’s 11th consecutive increase since its May 2015
initial public offering.
TEP
The board of directors of TEP’s general partner declared a
quarterly cash distribution of $0.975 per common unit for the first
quarter of 2018, or $3.90 on an annualized basis. This represents a
sequential increase of 1.0 percent from the fourth quarter 2017
distribution of $0.965 per common unit and an increase of 16.8
percent from the first quarter 2017 distribution of $0.835 per
common unit. It is TEP’s 19th consecutive increase since its May
2013 initial public offering.
The TEGP and TEP quarterly distributions for the first quarter
of 2018 will be paid on Tuesday, May 15, 2018, to shareholders and
unitholders of record as of the close of business on Monday, April
30, 2018.
Advisors
Barclays acted as advisor to TEGP and Evercore Partners acted as
advisor to the TEP Conflicts Committee. Baker Botts L.L.P. served
as legal counsel to TEGP and Bracewell LLP served as legal counsel
to the TEP Conflicts Committee.
About Tallgrass Energy
Tallgrass Energy is a family of companies that includes publicly
traded partnerships Tallgrass Energy Partners, LP (NYSE: TEP) and
Tallgrass Energy GP, LP (NYSE: TEGP). Operating across 11 states,
Tallgrass is a growth-oriented midstream energy operator with
transportation, storage, terminal, water, gathering and processing
assets that serve some of the nation’s most prolific crude oil and
natural gas basins.
To learn more, please visit our website at
www.tallgrassenergy.com.
Non-GAAP Measures
Tallgrass Energy Adjusted EBITDA includes the Adjusted EBITDA
for the assets owned by TEP as of Dec. 31, 2017, the additional 2
percent of Tallgrass Pony Express Pipeline, LLC (acquired by TEP
effective Feb. 1) and the distributions attributable to the
additional 25.01 percent membership interest in Rockies Express
Pipeline LLC (acquired by Tallgrass Equity on Feb. 7). Tallgrass
Energy Adjusted EBITDA does not include our estimate of
approximately $15 - $25 million of shipper deficiency payments that
would be included in distributable cash flow. Adjusted EBITDA is a
non-GAAP measure.
Adjusted EBITDA is a non-GAAP supplemental financial measure
that Tallgrass Energy management and external users of our
consolidated financial statements and financial statements of our
subsidiaries and unconsolidated investments, such as industry
analysts, investors, lenders and rating agencies, may use to
assess:
- our operating performance as compared
to other publicly traded partnerships in the midstream energy
industry, without regard to historical cost basis or, in the case
of Adjusted EBITDA, financing methods;
- the ability of our assets to generate
sufficient cash flow to make distributions and dividends to our
equity holders;
- our ability to incur and service debt
and fund capital expenditures; and
- the viability of acquisitions and other
capital expenditure projects and the returns on investment of
various expansion and growth opportunities.
We believe that the presentation of Adjusted EBITDA provides
useful information to investors in assessing our financial
condition and results of operations. Adjusted EBITDA should not be
considered an alternative to net income, operating income, net cash
provided by operating activities or any other measure of financial
performance or liquidity presented in accordance with GAAP, nor
should Adjusted EBITDA be considered an alternative to available
cash, operating surplus, distributions of available cash from
operating surplus or other definitions in our partnership
agreement. Adjusted EBITDA has important limitations as an
analytical tool because it excludes some but not all items that
affect net income and net cash provided by operating activities.
Additionally, because Adjusted EBITDA may be defined differently by
other companies in our industry, our definition of Adjusted EBITDA
may not be comparable to similarly titled measures of other
companies, thereby diminishing their utility.
We generally define Adjusted EBITDA as net income excluding
the impact of interest, income taxes, depreciation and
amortization, non-cash income or loss related to derivative
instruments, non-cash long-term compensation expense, impairment
losses, gains or losses on asset or business disposals or
acquisitions, gains or losses on the repurchase, redemption or
early retirement of debt, and earnings from unconsolidated
investments, but including the impact of distributions from
unconsolidated investments.
Tallgrass Energy is unable to project net cash provided by
operating activities or net income attributable to partners to
provide the related reconciliation of projected Adjusted EBITDA to
the most comparable financial measures calculated in accordance
with GAAP, because the impact of changes in operating assets and
liabilities and the volume and timing of deficiency payments
received and utilized from our customers are out of our control and
cannot be reasonably predicted. Tallgrass Energy provides a range
for the forecasts of Adjusted EBITDA to allow for the variability
in the timing of cash receipts and disbursements, customer
utilization of our assets, and maintenance capital spending and the
impact on the related reconciling items, many of which interplay
with each other. The timing of maintenance capital expenditures is
volatile as it depends on weather, regulatory approvals, contractor
availability, system performance and various other items.
Therefore, the reconciliation of projected Adjusted EBITDA to
projected net cash provided by operating activities and net income
attributable to partners is not available without unreasonable
effort.
Additional Information and Where to
Find it
In connection with the transactions referred to in this
material, TEGP expects to file a registration statement on Form S-4
with the Securities and Exchange Commission (“SEC”) that will
include a proxy statement/prospectus for the TEP unitholders. After
the registration statement is declared effective, TEP will mail a
definitive proxy statement/prospectus to its unitholders. This
material is not a substitute for the joint proxy
statement/prospectus or registration statement or for any other
document that TEGP or TEP may file with the SEC and send to TEGP’s
and/or TEP’s shareholders or unitholders in connection with the
proposed transactions.
INVESTORS AND SECURITY HOLDERS OF TEGP AND TEP ARE URGED TO READ
THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE
SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval.
Investors and security holders will be able to obtain free
copies of the proxy statement/prospectus (when available) and other
documents filed with the SEC by TEGP or TEP through the website
maintained by the SEC at http://www.sec.gov. Copies of the
documents filed with the SEC by TEGP and TEP will be available free
of charge on TEGP’s and TEP’s website at www.tallgrassenergylp.com,
in the “Investor Relations” tab near the top of the page, or by
contacting TEGP’s and TEP’s Investor Relations Department at
913-928-6012.
Participants in the
Solicitation
TEGP and TEP and their respective general partner’s directors
and executive officers may be considered participants in the
solicitation of proxies with respect to the proposed transactions
under the rules of the SEC. Information about the directors and
executive officers of TEGP’s general partner may be found in its
2017 Form 10-K filed with the SEC on Feb. 13, 2018, and any
subsequent statements of changes in beneficial ownership filed with
the SEC. Information about the directors and executive officers of
TEP may be found in its 2017 Form 10-K filed with the SEC on Feb.
13, 2018, and any subsequent statements of changes in beneficial
ownership filed with the SEC. These documents can be obtained free
of charge from the sources indicated above. Additional information
regarding the participants in the proxy solicitations and a
description of their direct and indirect interests, by security
holdings or otherwise, will also be included in any proxy statement
and other relevant materials to be filed with the SEC when they
become available.
Cautionary Note Concerning
Forward-Looking Statements
Disclosures in this press release contain forward-looking
statements. All statements, other than statements of historical
facts, included in this press release that address activities,
events or developments that management expects, believes or
anticipates will or may occur in the future are forward-looking
statements. Without limiting the generality of the foregoing,
forward-looking statements contained in this press release
specifically include the expected consideration to be received in
connection with the closing of the merger transaction, whether the
merger transaction between TEP and TEGP will be consummated before
the end of the second quarter of 2018 or at all, whether the
proposed transaction will be accretive to TEGP shareholders and TEP
unitholders, the Tallgrass Energy financial guidance for 2018, that
Tallgrass Energy upon closing will not pay cash federal income
taxes for a period estimated to be at least 10 years, whether the
elimination of TEP’s incentive distribution rights will improve
TEP’s and TEGP’s cost of capital or enhance TEP’s and TEGP’s
ability to compete for, or increase returns generated by,
acquisitions or organic growth projects, and whether the structure
resulting from the merger will be more appealing to a wider set of
investors. Such statements are subject to a number of assumptions,
risks and uncertainties, many of which are beyond the control of
TEP and TEGP, which may cause actual results to differ materially
from those implied or expressed by the forward-looking statements,
and other important factors that could cause actual results to
differ materially from those projected, including those set forth
in reports filed by TEP and TEGP with the SEC. Any forward-looking
statement applies only as of the date on which such statement is
made and TEP and TEGP do not intend to correct or update any
forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by law.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180326006187/en/
Tallgrass EnergyInvestor and Financial InquiriesNate
Lien, 913-928-6012investor.relations@tallgrassenergylp.comorMedia
and Trade InquiriesPhyllis Hammond,
303-763-3568phyllis.hammond@tallgrassenergylp.com
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