Two New York-based capital groups have launched a public takeover bid of Martin Midstream LP after they say its general partner’s conflicts committee rebuffed an offer to buy the company that would eclipse a May offer by Martin Resource Management.

In May, Martin Resource Management (MRMC) proposed buying its spinoff, Martin Midstream Partners (MMLP), for an estimated $100.3 million, according to a Securities and Exchange Commission filing. MRMC proposed buying the midstream company for $3.05 per unit.

On June 21, Nut Tree Capital Management LP, an investment management firm, and hedge fund Caspian Capital LP, countered with a non-binding offer to buy the midstream company for $4 per unit, or roughly $131 million cash. The offer represents a 31% premium to Martin Resource’s May offer and is more than 23% higher than its July 9 closing price. On July 11, Nut Tree and Caspian made their offer public.

Sharon L Taylor, Martin Midstream's CFO, told Hart Energy she was unable to comment on the firms' proposal. Taylor said Martin Resource "remains in active discussions with the Conflicts Committee of MMLP with respect to MRMC’s previously announced proposal for a potential transaction with MMLP."

Analysts said the more valuable offer is likely to force Martin Midstream’s hand and engage with Nut Tree and Caspian.

Nut Tree and Caspian, which are existing investors in Martin Midstream's debt, said in a July 11 letter that their proposal isn’t subject to financing conditions and would be financed through capital on hand. The firms said they have significant experience investing in the oil and gas sectors and are already familiar with Martin Midstream’s operations and capital structure.

In the letter to Martin Midstream’s general partner, the firms also raised questions about possible conflicts of interest between the midstream company and its general partner.

The firms described their offering as a compelling alternative to Martin Resource’s “below market and conflict-ridden proposal.”

Martin Midstream’s general partner is wholly owned and controlled by Martin Resource and its subsidiaries. Ruben Martin III serves as board chair of the midstream company’s general partner as well as president, CEO and board chair of Martin Resource, according to the letter.

Jed Nussbaum, chief investment officer at Nut Tree, and David Corleto, partner at Caspian, wrote that their all-cash offer proposal would bring “compelling and immediate value to unitholders of MMLP significantly in excess of MRMC's concerning and clearly conflicted offer.”

The firms’ financial analysis and review of publicly available information “confirm our view that the MRMC offer price of $3.05 per unit significantly undervalues MMLP common units and is highly inadequate,” according to their letter. “The MRMC offer represents an Enterprise Value of 4.8x management’s expected 2024 EBITDA, compared to comparable master limited partnerships that trade at approximately 8.5x as described in MMLP’s” own investor presentation.

“Notwithstanding our multiple attempts, the [Martin Midstream general partner’s] conflicts committee has thus far refused to meet with us regarding the merits of our proposal except to inform us that it would not engage with us unless the general partner were to support our proposal, a step that we view as highly irregular given the interconnected relationships between MRMC, the general partner and MMLP," they wrote.

Martin Resource and Martin Midstream are based in Kilgore, Texas, and provide services primarily along the Gulf Coast. Martin Resource spun off Martin Midstream through a 2002 IPO. The midstream company offers terminal and storage services. Its transport services include a fleet of tanker trucks and inland marine barges for shipping petroleum products and by-products.

Credible offer

In a breakdown of the proposal, a Stifel analyst deemed Nut Tree and Caspian's offer credible and said Martin Midstream will likely respond to the firms’ more lucrative bid.

“Specifically, we would think the Conflicts Committee would have a difficult time getting an opinion letter saying the current MRMC offer was fair since there is a credible bid on the table offering significantly more value in cash and is not subject to financing,” Stifel’s Selman Akyol, managing director, wrote in a July 11 commentary.

The bidders also hold a strong position since they hold the debt — and if they owned the equity they could recapitalize the company.

“The risk, of course, is MMLP does a significant amount of business with the parent company and separating the two businesses without materially impacting cash flows could prove challenging,” he said. “While we have not spoken with Nut Tree or Caspian, we doubt their goal is to own the assets but rather to ensure a fair price is being paid, assuming they have a common position as well.”

However, Akyol questioned some of Martin Midstream’s EBITDA projections of 8.5x. The firms’ offer represents a 5.3x multiple on its 2024 EBITDA estimate for Martin Midstream.

“While the parties reference an 8.5x EBITDA multiple in their letter, we believe these assets should trade lower given the ties to the refinery and agriculture markets, which have proven volatile over time and do not have the same recurring cash flow nature of other midstream assets,” Akyol said. “Even assuming a higher multiple for its ELSA joint venture, which comes online in 2026 and will likely contribute only marginally to the overall company, we still think 8.5x would be too rich.”

Stifel continues to “view MRMC as the most logical buyer, but believe it will take a higher price,” he said.

“Accordingly, we are moving our target price to $4.00 or approximately 5.3x 2024 EBITDA, and believe it could move higher with a potential MRMC sweetener.”

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