LEAWOOD, Kan.—Tallgrass Energy GP LP (NYSE: TEGP) and Tallgrass Energy Partners LP (NYSE: TEP) on March 26 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 second-quarter 2018.
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 canceled, the TEP common units will no longer be publicly traded and 100% of the equity interests of TEP will be owned by TEGP’s subsidiary, Tallgrass Equity LLC.
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% 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 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% 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 first-quarter 2018, or $1.95 on an annualized basis. This represents a 32.7% sequential increase from the fourth quarter 2017 dividend of $0.3675 per Class A share and an increase of 69.6% from 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 first-quarter 2018, or $3.90 on an annualized basis. This represents a sequential increase of 1% from the fourth-quarter 2017 distribution of $0.965 per common unit and an increase of 16.8% 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, May 15, to shareholders and unitholders of record as of the close of business on April 30.
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