Business Context and Reporting Period
This Form 8-K, filed on November 7, 2018, by Western Gas Equity Partners, LP (WGP), announces the entry into a definitive Contribution Agreement and Agreement and Plan of Merger. The transaction involves WGP, its subsidiary Western Gas Partners, LP (WES), and Anadarko Petroleum Corporation (APC). The agreement was dated November 7, 2018, and announced on November 8, 2018.
Key Financial Metrics and Transaction Structure
The filing details a complex transaction structure involving a merger, asset contributions, and asset sales rather than standard periodic financial performance metrics.
- Merger Consideration: Each outstanding WES common unit (excluding those owned by WGP, its subsidiaries, and WGRAH) will convert into the right to receive 1.525 WGP common units.
- Asset Contribution: APC subsidiaries will contribute midstream assets to WES in exchange for $1.814 billion in cash (less an intercompany note) and 45,760,201 WES common units.
- Asset Sale: APC Midstream Holdings will sell specific pipeline interests to WES for $193.9 million in cash.
- Financing: WES has obtained committed debt financing of $2.0 billion from Barclays Bank PLC to fund the cash consideration.
- Ownership Structure: As of November 7, 2018, WGP held a 29.6% limited partner interest in WES and 100% of the incentive distribution rights (IDRs). Other APC subsidiaries held an aggregate 9.5% limited partner interest.
Material Changes and Transaction Mechanics
The primary material change is the proposed consolidation of WES into WGP. Key mechanics include:
- Merger: A merger subsidiary will merge with and into WES, with WES surviving as the entity before the unit conversion.
- Unit Conversions: All outstanding WES Class C Units will convert to WES Common Units on a one-for-one basis. WES IDRs and general partner units will convert into 105,624,704 WES Common Units and a non-economic general partner interest.
- Termination Fee: If WGP terminates the agreement due to a change in recommendation by the WES Special Committee or Board prior to unitholder approval, WES must pay WGP a termination fee of $60 million.
Guidance, Outlook, and Risks
The filing outlines several conditions precedent and risks associated with the transaction:
- Closing Conditions: Completion is subject to WES unitholder approval, antitrust approvals, effectiveness of a Form S-4 registration statement, and NYSE listing approval.
- Timeline: The agreement includes a termination right if the transactions are not consummated by June 30, 2019.
- Management Commentary: Special Committees of both WES and WGP unanimously determined the transactions are advisable, fair, and reasonable, and recommended approval to their respective boards and unitholders.
- Risks: Risks include failure to obtain regulatory or unitholder approval, inability to secure financing, adverse market reactions, and uncertainties regarding the pro forma financial performance.
Investor Verification Checklist
- Verify the final approval status of the transaction by WES unitholders.
- Confirm the effectiveness of the Form S-4 registration statement and proxy statement/prospectus.
- Monitor the status of required antitrust and regulatory approvals.
- Review the definitive terms of the $2.0 billion debt financing from Barclays Bank PLC.
- Assess the impact of the 1.525 exchange ratio on WGP unit dilution and pro forma distribution coverage.