Vanguard to acquire LRR Energy for $539 million

Vanguard Natural Resources LLC (NASDAQ: VNR) and LRR Energy LP (NYSE: LRE) have entered into a purchase agreement and merger plan pursuant to which a subsidiary of Vanguard will merge into LRR Energy LP and, at the same time, Vanguard will acquire LRE GP LLC, the general partner of LRR Energy LP (collectively, LRR Energy, or LRE) for a total consideration of $251 million in Vanguard common units and the assumption of LRE’s net debt of $288 million.

As a result of the transaction, LRR Energy and its general partner will become wholly owned subsidiaries of Vanguard. The transaction, which has been approved by the boards of directors of both companies, including the Conflicts Committee of the board of directors of LRR Energy, will be a tax-free unit-for-unit transaction with an exchange ratio of 0.55 Vanguard common units per LRE common unit.

In addition, Vanguard will acquire all of the limited liability company interests in LRE GP LLC in exchange for 12,320 Vanguard common units. The consideration to be received by LRE unitholders is valued at $8.93 per LRR Energy common unit based on Vanguard’s closing price as of April 20, representing a 13% premium to LRR Energy’s closing price on April 20, and a 19% premium to LRR Energy’s 10-day volume weighted average price.

Vanguard and LRR Energy expect the transaction to close in the third quarter of 2015. The merger is subject to customary closing conditions, including the approval of the LRR Energy unitholders. Affiliates of Lime Rock Resources, LRE’s largest unitholder (owning over 30% of its outstanding equity), have agreed to support and vote in favor of the transaction.

Scott W. Smith, Vanguard’s president and CEO, commented, “The assets being acquired are attractive bolt-ons to our Permian and Arkoma basin operations, and have an inventory of development projects that generate good returns even in the current commodity environment.”

Upon the closing of the transaction, LRR Energy will be terminating the existing management services agreement with Lime Rock Management LP and Lime Rock Resources Operating Co. Inc. Offset by incremental corporate hires, Vanguard expects to generate significant general and administrative expense savings. Coupled with interest savings from the repayment of LRE’s existing second lien term loan, which is required to be repaid upon a change of control, Vanguard expects that the transaction will be immediately accretive to distributable cash flow per unit while also lowering Vanguard’s pro forma debt leverage.

Citigroup Global Markets Inc. acted as the exclusive financial advisor to Vanguard, and Paul Hastings LLP acted as legal counsel to Vanguard. Tudor, Pickering, Holt & Co. acted as exclusive financial advisor to LRR Energy, and Andrews Kurth LLP and Richards, Layton & Finger PA acted as legal counsel to LRR Energy. Simmons & Company International provided a fairness opinion to the Conflicts Committee of LRR Energy’s board of directors. Latham & Watkins LLP acted as legal counsel to the Conflicts Committee of LRR Energy’s board of directors.

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