Pipeline company Plains All American Pipeline LP (PAA.N) said it made an unsolicited $1 billion bid for rival SemGroup Corp (SEMG.N) but the $24-a-share offer was rejected.
Shares of SemGroup soared 19 percent to $28.11 in morning trading on the New York Stock Exchange, indicating investors are looking for a higher bid.
Plains said on Monday that it offered $24 a share for SemGroup, a 1.9 percent premium over the stock's closing price of $23.56 on Friday. It said the proposal was first submitted on October 6.
"It's possible that some others bidders emerge," said Avi Feinberg, an analyst with Morningstar Inc.
Feinberg said crude oil-focused and refined products-focused master limited partnerships could consider a bid, but noted that "Plains has the best natural fit (with SemGroup) of any company."
SemGroup's assets include 620-mile pipeline network in Kansas and Oklahoma as well as a 51 percent stake in a 527-mile pipeline that transports crude oil from Colorado to Oklahoma.
Plains All American Pipeline owns and operates a network of about 16,000 miles of pipelines and gathering systems and has about 90 million barrels of liquids storage capacity.
Both companies are major players in crude oil storage at Cushing, Oklahoma, which has experienced a storage boom in recent years as growing volumes of crude flow into the landlocked mid-continent region from prolific oilfields in Canada and shale oil fields in the northern U.S. plains.
Cushing tanks have proven highly profitable for oil traders during bouts of contango -- when crude prices trade at a discount to oil for future delivery -- since they allow oil storage plays for profit. Contango has been common since 2009.
Plains said it would be willing to consider increasing its bid if it could get access to SemGroup's financial information, but that SemGroup's board has been unwilling to engage in discussions about the proposal.
SemGroup, once the 14th-largest privately held U.S. company, was forced to file for bankruptcy protection in 2008 under the weight of heavy trading losses on energy futures and derivatives. Last week, SemGroup co-founder Thomas Kivisto agreed to give up more than $1.3 million to settle U.S. Securities and Exchange Commission charges that he misled investors about liquidity risks from his energy trading.
Plains said SemGroup has underperformed expectations since its 2009 emergence from bankruptcy.
"We continue to believe ... that on a stand-alone basis SemGroup will continue to fall materially short of expectations," Plains Chief Executive Greg Armstrong said in a letter to SemGroup's board.
In August, SemGroup agreed to sell its SemStream LP unit for about $282 million in cash and stock to NGL Energy Partners LP (NGL.N). That deal also calls for SemGroup to take a 7.5 percent interest in the general partner of NGL Energy.
If Plains is successful in grabbing SemGroup, it would follow a number of other large U.S. pipeline deals this year, including Kinder Morgan's (KMI.N) $21 billion takeover of El Paso Corp EP.N and Energy Transfer Equity's (ETE.N) more than $5 billion deal for Southern Union SUG.N.
Plains has hired Evercore Partners (EVR.N) to advise on its bid.
(Additional reporting by Joshua Schneyer and Matt Daily in New York; editing by Gerald E. McCormick, Dave Zimmerman and John Wallace)