Business Context and Reporting Period
This Form 8-K, dated August 1, 2018, reports a material definitive agreement entered into by Energy Transfer Equity, L.P. ("ETE") and Energy Transfer Partners, L.P. ("ETP"). The filing details an Agreement and Plan of Merger under which ETP will merge with a subsidiary of ETE, with ETP continuing as the surviving entity and a subsidiary of ETE.
Key Financial Metrics and Transaction Terms
The filing does not provide standard financial performance metrics such as revenue, profit, cash flow, or debt levels for the reporting period. Instead, it outlines the financial terms of the proposed merger:
- Exchange Ratio: Each outstanding ETP Common Unit will be converted into 1.28 ETE Common Units.
- Preferred Units: ETP Class E, G, and K Units, as well as Series A through D Preferred Units, will continue to be issued and outstanding in ETP post-merger.
- Equity Awards: Unvested ETP restricted units will convert to ETE restricted units multiplied by the 1.28 exchange ratio.
- Class A Units: ETE will issue Class A Units to ETE GP to maintain current voting interest. These units have no economic attributes except a $100 aggregate distribution upon liquidation.
- Termination Fees: Upon termination under certain circumstances, ETP may be required to pay ETE a termination fee of $750 million (less prior reimbursements) or reimburse expenses up to $30 million.
Material Changes and Conditions
The transaction represents a significant structural change, consolidating two major energy infrastructure entities. The completion of the Merger is subject to several material conditions, including:
- Approval by a majority of ETP's common unitholders and unaffiliated common unitholders.
- Listing approval for ETE Common Units on the New York Stock Exchange.
- Expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
- Effectiveness of a registration statement on Form S-4.
- Receipt of specific tax opinions.
The parties have agreed to use reasonable best efforts to resolve antitrust objections, including potential asset disposals or hold separate agreements, to close the transaction no later than March 31, 2019.
Outlook, Risks, and Management Commentary
Management has approved the Merger Agreement and recommends that ETP unitholders adopt it. The filing includes a cautionary statement regarding forward-looking statements, noting that actual results may differ materially due to various risks.
Key Risks Identified:
- Failure to obtain requisite regulatory or unitholder approval.
- Impact on relationships with employees, suppliers, customers, and credit rating agencies.
- Ability to achieve projected revenue, DCF, and EBITDA growth.
- Volatility in the prices of oil, natural gas, and natural gas liquids.
ETP has agreed not to solicit competing proposals, though the board may change its recommendation if an alternative proposal arises that makes the current recommendation inconsistent with their legal duties.
Investor Verification Checklist
- Verify the final approval status of the merger by ETP unitholders.
- Monitor the status of the Form S-4 registration statement and NYSE listing approval.
- Track any antitrust regulatory actions or required asset divestitures to meet the March 31, 2019 closing deadline.
- Review the upcoming Proxy Statement/Prospectus for detailed financial projections and risk factors.
- Confirm the treatment of specific ETP preferred units and restricted stock awards post-merger.