Azure Midstream Energy LLC said Jan. 15 that it will acquire Marlin Midstream Partners LP (NASDAQ: FISH) to form a midstream partnership worth about $500 million.
Dallas' Azure said it entered into agreements with Marlin and its sponsor, NuDevco Midstream Development LLC, to purchase 100% of Marlin's general partner and 90% ownership of the total outstanding incentive distribution rights (IDRs) in Marlin.
Terms were not disclosed.
Azure operates about 1,365 miles of pipeline providing natural gas gathering, compression and treating, and processing services in the Haynesville and Cotton Valley plays in East Texas and northern Louisiana. The combination of Azure with Houston-based Marlin will create one of the largest gathering and processing systems in the region, according to a news release.
Additionally, Marlin will acquire through a dropdown Azure's Legacy gathering system for $162.5 million. The legacy system serves about 100,000 dedicated acres, mostly in East Texas’ Cotton Valley formation and northern Louisiana with access to seven major downstream markets.
Azure will retain its Haynesville Center and Holly gathering systems at the general partner level for future potential dropdowns over time.
The deal is expected to offer enhanced scale and diversification and provide the financial flexibility to compete for greenfield development and acquisition opportunities.
Further, the combination of a significant portfolio of long-term, fee-based contracts with high-quality producers, coupled with the potential for organic capital opportunities across multiple geographies, provides meaningful visibility to long-term growth for the partnership. The complementary services offered by Azure and Marlin are also expected to create attractive operational and financial synergies for both entities.
I.J. "Chip" Berthelot, CEO, president and director of Azure, said the combined businesses expand the set of services offered to customers. The partnership will also be more effectively positioned for bolt-on acquisitions and step-out expansions in other areas.
"This transaction advances Azure's strategic objectives of becoming part of a larger, public MLP capable of providing access to growth capital for acquisitions, and further diversifies our customer base and midstream service offerings by expanding Azure with Marlin's new and efficient processing assets within our core areas," he said.
At closing, the combined partnership will be headquartered in Dallas with a continuing commercial presence in Houston. The partnership will be led by Azure's current executive management team, including Berthelot, currently CEO, and Azure's team of midstream veterans. The remaining partnership positions will be comprised of both Azure and Marlin personnel.
Marlin's chairman and CEO, W. Keith Maxwell III will step down from day-to-day management at Marlin upon closing. However, Maxwell has elected to maintain 100% of his common and subordinated unit equity stake in the combined partnership, subject to Azure's option for 20% of those units. Additionally, he will continue to serve as a director of the combined partnership.
NuDevco will retain all of its 10.7 million LP units, or 59.2% ownership stake, in Marlin, subject to an option granted to Azure to acquire 20% of such units from NuDevco in order to align interests and incentivize unit holder value creation.
The proposed transactions are expected to close during the first quarter of 2015, subject to customary closing conditions, lender approvals and necessary financings. The transactions are not conditioned upon the approval of the holders of the limited partner interests of Marlin.
Wells Fargo Securities LLC was the exclusive financial adviser to NuDevco, and Andrews Kurth LLP was legal counsel for NuDevco. Simmons & Company International was the exclusive financial adviser to Marlin's conflicts committee, and Akin Gump Strauss Hauer & Field LLP was legal counsel for Marlin's conflicts committee.
BofA Merrill Lynch was the exclusive financial adviser to Azure, and Vinson & Elkins LLP and Latham Watkins LLP were legal counsel for Azure.
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