$7 Billion Pipeline Company

Brian Hicks

Written By Brian Hicks

Posted May 13, 2013

Announced last Monday, pipeline operator Crestwood Midstream Partners LP (NYSE: CMLP) will take control of energy infrastructure and distribution company Inergy LP (NYSE: NRGY), as well as Inergy’s master limited partnership, Inergy Midstream LP (NYSE: NRGM).

The total enterprise is valued at about $7 billion, and together the takeover will form a midstream energy company that will link energy supply with demand.

pipelineCrestwood Holdings, affiliate of Crestwood Midstream, will also be involved in the acquisition; together they are controlled by private equity firm First Reserve, which owns all of Crestwood Holdings and 43 percent of Crestwood Midstream.

The deal is expected to be completed by the third quarter of this year.

Once the intricate and complex deal is complete, the newly combined company will have assets in all major shale plays in North America, according to the Deal Pipeline . This includes the three major formations – the Marcellus, Bakken and Eagle Ford – as well as the Permian, Powder River Basin Niobrara, Utica, Barnett, Fayette, Granite Wash, Haynesville, and Monterey shale.

From there, pipeline will be provided, as well as other services to assist in oil and gas drilling operations.

$450 million in earnings should be generated in the first year.

The Merger

Robert G. Phillips will become the chairman and CEO of the new company, the same roles he held at Crestwood Midstream.

Mr. Phillips said in a statement, according to DealBook:

“We view this transaction as a merger of equals through which we are creating a larger, more diversified operating platform that will be highly attractive to investors, customers, creditors and employees.”

Headquarters will be based in Crestwood’s present home of Houston, Texas, with executive offices in Kansas City (where Inergy is based) and Fort Worth, Texas.

The actual takeover will take place following a series of cash-and-stock transactions.

There will be no financing; however, there is a revolving loan in place that would allow the company to upsize that term loan from $600 million to $1 billion, as needed.

The transaction of the merger will take place in three steps, all contingent on the completion of the previous steps.

The first will be the initial acquisition of Inergy LP by Crestwood Holdings for $80 million in cash, likely to close by mid-June, the Deal Pipeline reports. Inergy LP unitholders will receive the company’s units in Inergy Midstream.

Once that has happened, Crestwood Holdings will give its interest in Crestwood Gas Services GP LLC to Inergy.

Crestwood Midstream will merge with Inergy Midstream in the final transaction. Crestwood shareholders will receive 1.07 units of Inergy Midstream for each unit of Crestwood.

Crestwood Midstream will then be valued at $2.7 billion.

The deal has already been approved by both companies but still must go through the majority of limited partners in Crestwood Midstream.

Inergy Midstream and Inergy LP will still be listed under their New York Stock Exchange ticker symbols NRGM and NRGY, respectively.

Pipeline Market

This merger will be accredited to Inergy LP and Inergy Midstream unitholders, but of even more importance is the market into which this newly formed company will be catapulted.

Crestwood already has a great reputation in many aspects of shale gas production, giving it a competitive advantage in the areas of gathering, processing, treating, compression, transportation, sales, and delivery from shale formations around the country.

And Inergy, which already owns, operates, develops, and acquires midstream energy assets, has an equally prestigious reputation.

But now, by incorporating that success from the supply stream of the industry with the complimentary demand side in Inergy LP and Inergy Midstream LP, a perfect brand of equality from both sides has been created that will combine power, integrity, and value leading into the future.

Mergers like this one will symbolize strength and stability for an industry that gets stronger every day.


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