In transactions worth nearly $4.6 billion, Enterprise Products Partners LP (NYSE: EPD) has acquired a controlling interest in oil storage and terminal business of Houston-based Oiltanking Partners LP (NYSE: OILT). As a result, Enterprise will have 66% of Oiltanking Partners and full ownership of its general partner from Oiltanking Holding America Inc., which is a subsidiary of Germany-based oil and gas storage provider Oiltanking GmbH.
Enterprise paid total consideration of $4.41 billion to Oiltanking Holding comprising $2.21 billion in cash and 54,807,352 Enterprise common units. Enterprise also paid $228 million to assume notes receivable issued by Oiltanking Partners.
This current transaction is the first step of a two-part process in which Enterprise plans to merge Oiltanking Partners into Enterprise to help Enterprise expand its liquefied petroleum gas export business near Houston. Enterprise plans to acquire the remaining publicly held partner interests in Oiltanking for approximate $1.4 billion, resulting in a collective $6 billion transaction.
Upon the payment of the Oiltanking Partners’ distribution with respect to the third quarter of 2014, which is expected to be paid in mid-November, the subordination period with respect to the Oiltanking Partners subordinated units will end. At that time, the subordinated units will convert into common units on a one-for-one basis. Upon conversion, Enterprise will own 54,799,604 common units, or 66% of Oiltanking Partners’ then outstanding common units.
In addition to this transaction, Enterprise submitted a proposal to the conflicts committee of the general partner of Oiltanking Partners to merge Oiltanking Partners with, and into, Enterprise. Under the terms of this proposal, Enterprise would exchange 1.23 Enterprise common units for each Oiltanking Partners common unit.
This proposed consideration represents an at-market value for Oiltanking Partners common units based upon the volume weighted average trading prices of both Oiltanking Partners and Enterprise on Sept. 30. The total consideration for this proposal would be $1.4 billion. The total consideration for Step 1 and Step 2, as proposed, would be $6 billion.
Oiltanking Partners owns marine terminals on the Houston Ship Channel and the Port of Beaumont with a total of 12 ship and barge docks and 24 million barrels of crude oil and petroleum products storage capacity on the Texas Gulf Coast.
Enterprise has worked with Oiltanking for more than 30 years, and is Oiltanking's largest customer, representing approximately 30% of Oiltanking Partners’ 2013 revenue. Oiltanking Partners’ marine terminal on the Houston Ship Channel is connected with Enterprise’s Mont Belvieu, Texas, facility, and it is integral to Enterprise’s growing LPG export, octane enhancement, and propylene businesses. Enterprise has loaded or unloaded over 3,500 ships with more than 600 million barrels of LPG across Oiltanking Partners’ docks over the past 31 years. Enterprise’s ECHO facilities are also connected to Oiltanking’s system.
For this current transaction, Citi acted as financial advisors, and Andrews Kurth LLP and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel to Enterprise. Additionally, Citi acted as lead arranger for Enterprise’s new $1.5 billion 364-day revolving credit facility.