American Midstream Partners to merge with JP Energy Partners

American Midstream Partners LP (NYSE: AMID) and JP Energy Partners LP (NYSE: JPEP) have executed a merger agreement to create a combined midstream platform.

American Midstream will acquire 100% of JP Energy in a unit-for-unit merger which is anticipated to have minimal, if any, tax recognition for the unitholders. In conjunction with the transaction, ArcLight Capital Partners LLC, the sponsor of both American Midstream and JP Energy, will combine the general partners of the two companies. Upon closing, the combined entity is expected to generate pro-forma Adjusted EBITDA of approximately $185 million, assuming 2016 mid-point guidance from each respective company and including run-rate synergies of approximately $10 million.

The merger of American Midstream and JP Energy will create a diversified midstream business operating in leading North American basins, including the Permian, Gulf of Mexico, Eagle Ford and Bakken. The combined partnership will have an estimated enterprise value of $2 billion.

“The merger elevates and reshapes our two businesses into a new platform that we expect will allow for higher growth, new business opportunities and a stronger financial position than either company could achieve separately,” said Lynn L. Bourdon, III, chairman, president and CEO of American Midstream. “This transformational combination is the next logical step in expanding services from the wellhead to the end user market.”

Combined entity
Upon completion of the transaction, combined partnership will be headquartered in Houston, Texas and the board of directors of the general partner of American Midstream will remain unchanged. Lynn L. Bourdon, III will serve as chairman and CEO and Eric T. Kalamaras will serve as CFO of the combined partnership.

The combined partnership will own and operate diverse midstream infrastructure representing:

  • More than 3,100 miles of gathering and transportation pipeline,
  • Over 2.5 Bcf/d of transportation capacity,
  • Six processing plants with 400 MMcf/d of processing capacity,
  • Three fractionation facilities with 20,000 bpd of capacity,
  • 13.9% interest of offshore floating production facility (FPS) in the deep-water Gulf of Mexico,
  • Over six million barrels of above-ground liquids storage capacity, and
  • The third largest wholesale propane business in the U.S.

Agreement terms
Under the terms of the Merger Agreement, American Midstream common units will be issued to JP Energy public unitholders at an exchange ratio of 0.5775:1 and to affiliates of ArcLight that hold common units and subordinated units at an exchange ratio of 0.5225:1, resulting in a blended average exchange ratio of 0.55:1. Consideration received by JP Energy public unitholders is structured as a unit-for-unit exchange valued at $8.63 per common unit based on American Midstream’s closing unit price as of October 21, 2016, representing a 14.5% premium to the closing price of JP Energy’s common units of $7.54 on October 21, 2016 and a 14.2% premium to the volume weighted average closing price of JP Energy common units for the last 20 trading days ending October 21, 2016.

The general partner of JP Energy will be merged with the general partner of American Midstream, with the general partner of American Midstream continuing in its current form. ArcLight affiliates have also agreed to provide additional support to the combined partnership to achieve average annual distributable cash flow per unit accretion of approximately 5% for 2017 and 2018. An affiliate of ArcLight will also support the merger through reimbursement of JP Energy’s transaction and transition costs.

The transaction is expected to close in late 2016 or early 2017, subject to customary closing conditions, including effectiveness of a registration statement on Form S-4 related to the issuance of new American Midstream units to the JP Energy unitholders, approval by a majority of JP Energy public unitholders and regulatory approvals.

Bank of America Merrill Lynch acted as financial advisor to American Midstream and Simmons & Company International, Energy Specialists of Piper Jaffray acted as financial advisor to the Conflicts Committee of American Midstream. Locke Lord LLP acted as legal counsel to American Midstream and Thompson & Knight LLP acted as legal counsel to the Conflicts Committee of American Midstream. BMO Capital Markets acted as financial advisor to JP Energy and Latham & Watkins acted as legal counsel to JP Energy. Andrews Kurth LLP acted as legal advisor to ArcLight.

 

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