HONG KONG (Reuters) - Hong Kong investment firm ZZ Capital International (8295.HK) agreed on Friday to buy U.S. index provider Alerian in a deal valued at up to $812 million, gaining a foothold in the growing market for U.S. energy industry investment products.
ZZ Capital, which is listed on the Growth Enterprise Market of the Hong Kong stock exchange, is making an initial payment of $582 million, with up to $230 million more if Alerian meets certain revenue targets for the years ending 2018-2021, the company said in a securities filing.
ZZ Capital shares have fallen 26 percent since the start of the year, giving it a market capitalization of $218.3 million.
The company plans to raise $286 million with the issue of new shares in a rights offering to make the initial payment, with an undisclosed amount also from debt financing and from internal cash. It also plans to raise another $230 million with a second rights offering to meet its future commitments based on Alerian’s performance.
The Listing Committee of the Hong Kong exchange viewed the deal as “an extreme very substantial acquisition” and requested additional information similar to that required of companies going public, ZZ Capital said in the filing.
ZZ Capital HAS hired Haitong International Capital as financial adviser to conduct due diligence of Alerian.
Dallas-based Alerian is controlled by billionaire brothers Gabriel and Daniel Hammond, who will earn $485 million in cash for their combined 85 percent stake. Alerian’s Chief Executive Kenny Feng, who owns the remainder 15 percent of the company, will earn $21 million in cash and $64 million in units of the special purpose vehicle ZZ Capital set up to buy Alerian.
The company has built a niche in the energy industry by providing an index that tracks so-called master limited partnerships (MLPs), which build the pipelines and storage tanks and are a common corporate structure in the oil and gas infrastructure sector.
There are about $17 billion of assets linked to Alerian indices, including the Alerian MLP index .AMZ. Alerian posted $58.6 million in profit in 2016, down 4.3 percent from 2015, ZZ Capital said.
Reporting by Elzio Barreto, editing by David Evans