Business Context and Reporting Period
This Form 8-K, filed on October 13, 2014, reports that Targa Resources Corp. (TRC) and Targa Resources Partners LP (TRP) have entered into definitive agreements to acquire Atlas Energy, L.P. (ATLS) and Atlas Pipeline Partners, L.P. (APL). The filing details a complex series of transactions involving mergers, a separation of ATLS assets into a new entity ("New Atlas"), and a pro rata distribution to ATLS unitholders.
Key Financial Metrics and Transaction Terms
The filing outlines specific consideration and financial obligations rather than historical operating metrics.
- ATLS Merger Consideration: ATLS unitholders will receive 0.1809 shares of TRC common stock and $9.12 in cash per unit.
- APL Merger Consideration: APL unitholders will receive 0.5846 TRP common units and $1.26 in cash per unit.
- Debt Repayment: TRC will pay $88.0 million to ATLS to repay a portion of its outstanding indebtedness prior to the merger.
- Transaction Costs: TRC and TRP will pay approximately $190 million and $65 million, respectively, for transaction fees, expenses, and change of control payments.
- Financing for Separation: New Atlas will borrow at least $150 million to transfer to ATLS as a cash distribution for debt repayment.
- Termination Fees:
- ATLS Merger: $53.4 million termination fee or $17.8 million expense reimbursement.
- APL Merger: $122.9 million termination fee or $40.9 million expense reimbursement.
Material Changes and Transaction Structure
The transactions represent a material change in the corporate structure of the registrants and the target companies.
- Merger Structure: ATLS will merge into a TRC subsidiary, and APL will merge into a TRP subsidiary. Both will become wholly-owned subsidiaries.
- Separation and Distribution: Prior to the ATLS merger, ATLS will transfer non-pipeline assets to "New Atlas" and distribute 100% of New Atlas units to ATLS unitholders.
- Cross-Conditioning: The ATLS and APL mergers are cross-conditioned; the failure of one may prevent the other.
- Equity Adjustments: Outstanding equity awards for employees of the "Midstream Companies" (transferred to TRC/TRP) will be converted into TRC/TRP awards or cash. Awards for employees transferring to New Atlas will be adjusted to reflect the distribution.
- Distribution Reduction: As a condition of the APL merger, TRP will reduce aggregate distributions to TRC (holder of incentive distribution rights) by a total of $20 million over 16 quarters, with the savings distributed pro rata to TRP common unitholders.
Guidance, Risks, and Contingencies
The filing contains no forward-looking financial guidance regarding revenue or earnings for the combined entities. It highlights several risks and contingencies:
- Approval Requirements: Transactions require approval from ATLS and APL unitholders, TRC shareholders, and expiration of HSR Act waiting periods.
- Regulatory and Legal Risks: Completion is subject to customary representations, warranties, and the absence of a material adverse effect.
- Market Risks: Forward-looking statements are subject to risks including weather, political conditions, and declines in natural gas, NGL, and crude oil prices.
- Non-Competition: Key executives from ATLS/APL have entered into 18-month non-compete and non-solicitation agreements.
- Voting Support: Voting agreements have been secured with directors and officers representing approximately 6% of ATLS units and 10% of TRC stock.
Investor Verification Checklist
- Verify the final vote results from ATLS, APL, and TRC shareholders to confirm transaction approval.
- Review the upcoming Form S-4 joint proxy statement/prospectus for detailed financial projections and risk factors.
- Confirm the status of the HSR Act waiting period expiration.
- Monitor the execution of the $150 million financing commitment for New Atlas.
- Assess the impact of the reduced incentive distribution rights on TRP's cash flow distribution to common unitholders.