(Reuters) - Pipeline company Energy Transfer Partners LP ETP.N said on Monday it would buy affiliate Regency Energy Partners LP RGP.N for about $11 billion, the latest example of master limited partnerships (MLP) trying to simplify their structures and lift returns.
The deal, essentially an in-house merger, is similar to one carried out by pipeline operator Williams Cos. for its Access Midstream Partners unit in October.
Unlike the $44 billion deal industry leader Kinder Morgan Inc (KMI.N) led last year to fold all of its units into a traditional C-Corporation, Energy Transfer will remain an MLP with several units.
MLP mergers are often held when a unit in a group is underperforming its peers, or to scale back incentivized distribution rights that can divert more cash returns to general partners.
Under terms of the deal, Regency shareholders will receive 0.4066 of an Energy Transfer unit and 32 cents in cash for each unit they own.
The offer works out to $26.89 per Regency unit based on Energy Transfer’s Friday close, a 13 percent premium to Regency’s last closing price.
Regency shares were up 7.7 percent in early trading, Energy Transfer shares were down 5.5 percent at $61.71.
Energy Transfer and Energy Transfer Equity LP ETE.N own a combined stake of about 22 percent in Regency, according to Thomson Reuters data.
Energy Transfer Equity owns the general partner and incentive distribution rights of both Regency and Energy Transfer Partners. Energy Transfer Partners Chief Executive Kelcy Warren is also the chairman of Energy Transfer Equity.
MLPs, which pay no taxes if they distribute the bulk of their earnings to investors, are required to hand over a chunk of their cash to general partners.
Energy Transfer Equity agreed to reduce the incentive distributions it gets from Energy Transfer by $320 million over five years. The deal also includes the assumption of $6.8 billion in net debt.
A 60 percent fall in crude prices is spurring consolidation in the energy industry.
“In light of the current volatility in commodity prices and the changes in the capital markets, it became apparent over the last several months that Regency needed more scale and diversification,” Regency’s Chief Executive Mike Bradley said in a statement.
The deal will help Energy Transfer expand capacity in Texas and add assets in Pennsylvania’s Marcellus shale field and Ohio’s Utica shale after the deal closes in the second quarter.
Reporting by Swetha Gopinath in Bengaluru; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila and David Gregorio