In an $18 billion deal, Energy Transfer Partners LP (ETP) and Regency Energy Partners LP (RGP) have agreed to a unit-for-unit transaction, plus a one-time cash payment to Regency holders, including the assumptions of debt and other liabilities of $6.8 billion. The deal is expected to close during the second quarter.

As for whether this means other companies are planning to roll-up their MLPs into a single entity, a la Kinder Morgan Inc. (KMI), analysts say the move falls more into the bucket of MLP consolidation, not simplification, which was a key KMI goal.

Hinds Howard, vice president and senior financial analyst at CBRE Clarion Securities in Radnor, Pa., said it makes sense to roll them up now because of the relative valuations of Regency compared to Energy Partners.

“[Energy Transfer] has been trading very well in this downturn, so its multiple relative to [Regency’s] makes the deal neutral today for ETP unitholders. That was the main deterrent to this deal happening the last several years,” he explained.

Regency has significant funding needs, but it’s not in a good position to issue equity. Consequently, for Regency to get its growth capex financed, the company was going to have to issue equity to Energy Transfer Equity LP (ETE) or do something like this merger, Howard said.

“For ETP, it’s a neutral deal for now, [but] it’s very positive for ETE. It will be significantly accretive to ETE even after the [incentive distribution rights] IDR givebacks, because it is taking its [general partner] interest in RGP (which is lower in the IDR splits) and adding it to ETP (which is higher in the IDR tiers). It adds commodity price exposure to ETP, but hopefully it’s a good time to buy commodity price exposure (hopefully near the bottom).”

Howard said there are no significant obstacles in the way of the deal. Other, similarly situated conglomerates such as Sunoco’s wholesale distribution unit and its liquids pipeline could make sense for merging, he said, “but there was much more overlap with RGP and ETP’s assets.”

Or, as Ethan Bellamy at Robert W. Baird puts it, “At last, my love has come along. After literally years of waiting, we finally get the rollup of RGP into ETP, courtesy of energy sector volatility, the oil plunge and the M&A weapon of choice, IDR givebacks,” he wrote in a note to investors.

“We like the deal across the Energy Transfer family on increased simplicity. We don’t expect much near-term fundamental impact. We expect the deal to get done with minimal if any sweetener required.”

As for the rest of the MLP pack, Bellamy said market volatility is creating new opportunities, and the firm wouldn’t be surprised to see two or three mergers per quarter.

“Who could get bought? Think any small- or mid-cap MLP, particularly those that are struggling,” he said.

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