USD 400 M DEAL - SemGroup Corporation Announces Agreement to Acquire Rose Rock Midstream
SemGroup Corporation Announces Agreement to Acquire Rose Rock Midstream
- All equity transaction expected to be immediately accretive to SEMG shareholders
- RRMS unitholders to receive 0.8136 shares of SEMG per RRMS unit
- 7.4% and 19.2% implied premium to RRMS 10-trading day and 20-trading day volume-weighted average closing prices, respectively
- SEMG is targeting an 8% compound annual dividend growth rate and dividend coverage of 1.5x or greater through 2018
- Simplifies corporate capital structure and expected to improve cost of capital
- Provides financial flexibility to execute on strategic growth plan
- SemGroup will continue to have ~$1.1 billion of liquidity following this transaction
- Transaction expected to be viewed ratings positive by the ratings agencies
- Targeting transaction to close in third quarter 2016
TULSA, Okla., May 31, 2016 (GLOBE NEWSWIRE) -- SemGroup® Corporation (NYSE:SEMG) and Rose Rock Midstream (NYSE:RRMS) today announced an agreement under which SemGroup will acquire all of the outstanding common units of Rose Rock not already owned by SemGroup in an all stock-for-unit transaction at a ratio of 0.8136 SemGroup common shares per Rose Rock common unit. The implied Rose Rock unit price represents a 7.4% and 19.2% premium to its volume-weighted average prices during the 10-trading days and 20-trading days ending May 27, 2016, respectively.
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Following completion of the transaction, SemGroup is targeting an 8% compound annual dividend growth rate and dividend coverage of 1.5 times or greater through 2018. Both SemGroup and Rose Rock expect to maintain their current level of dividends and distributions, respectively, through closing of this transaction.
“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, president and chief executive officer of SemGroup. “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. We anticipate that Rose Rock’s businesses, already managed by SemGroup, will enhance our combined credit profile, dividend coverage, and future dividend growth rate beyond 2016.”
The transaction will be a taxable event to Rose Rock unitholders with recognition of gain or loss in the same manner as if they had sold their Rose Rock units for cash equivalent to 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. Combined with SemGroup’s current NOLs and projected accelerated tax depreciation for future capital expenditures, the company does not anticipate being a significant U.S. taxpayer through 2020.
Conditions to Closing and Timeline to Completion
Rose Rock was represented in the negotiations by its general partner’s Conflicts Committee, which comprises independent members of its general partner’s board of directors. The Rose Rock Conflicts Committee granted Special Approval of the transaction pursuant to the Rose Rock limited partnership agreement and recommended approval of the transaction to the board of directors of the general partner of Rose Rock. The transaction was approved by the boards of directors of both the general partner of Rose Rock and SemGroup.
The transaction is subject to the approval of the SemGroup shareholders and common unitholders of Rose Rock. SemGroup owns 56% of the Rose Rock common units, which is sufficient to approve the transaction on behalf of the holders of Rose Rock common units. Upon completion of the transaction, all of the outstanding common units of Rose Rock will be owned by SemGroup. As a result, Rose Rock will no longer be publicly traded and related IDRs will be eliminated. Subject to customary approvals and conditions, the transaction is expected to close in the third quarter of 2016.
Advisors
Barclays and Citi acted as financial advisors and Gibson, Dunn & Crutcher LLP acted as legal counsel to SemGroup on this transaction. Potter Anderson & Corroon LLP acted as legal counsel to the SemGroup Board of Directors. Evercore Group L.L.C., acted as financial advisors and Akin Gump Strauss Hauer & Feld LLP and Morris, Nichols, Arsht & Tunnell LLP acted as legal advisors to the Conflicts Committee of the general partner of Rose Rock.
Conference Call and Investor Presentation
SemGroup will discuss the transaction on May 31, 2016 at 8:30 a.m. Eastern Time. The conference call can be accessed via webcast here or through the Events and Presentations section of SemGroup’s website at www.semgroupcorp.com, or by dialing 1-866-270-1533 for U.S. callers or 1-412-317-0797 for international callers. A replay will be available following completion of the webcast through the Investor's section of the website. An investor presentation regarding the transaction has been posted on the Events and Presentations section of the SemGroup and Rose Rock Midstream websites.