Business Context and Reporting Period
Company: Plains GP Holdings, L.P. (PAGP)
Filing Type: Form 8-K (Current Report)
Date of Report: July 11, 2016
Event: Entry into a Material Definitive Agreement (Simplification Agreement) with Plains All American Pipeline, L.P. (PAA) and related entities to restructure the corporate governance and ownership relationship between the two companies.
Key Financial Metrics
This filing is a current report regarding a corporate transaction and does not contain periodic financial statements (e.g., revenue, profit, or cash flow). However, the following transaction-specific financial figures are disclosed:
- Debt Assumption: PAA will assume approximately $593 million of outstanding debt held by Plains AAP, L.P. (AAP).
- Equity Issuance: PAA will issue approximately 245.5 million common units to AAP in exchange for incentive distribution rights and the conversion of the 2% economic general partner interest.
- Voting Support: Supporting Shareholders holding approximately 51.3% of outstanding PAGP shares (328,805,166 shares) have agreed to vote in favor of the transaction.
Material Changes and Transaction Details
The Simplification Agreement outlines a significant restructuring of the relationship between PAGP and PAA:
- Conversion of Interests: AAP will contribute its incentive distribution rights in PAA to PAA. PAA GP's 2% economic general partner interest in PAA will be converted into a non-economic general partner interest.
- Unified Governance: The Board of Directors of GP Holdings will be expanded from seven to ten members and will oversee both PAGP and PAA.
- Director Elections: The board will be divided into three classes, accelerating the first director election to 2018. PAA unitholders (excluding AAP) will gain the right to participate in these elections via newly created non-economic Class C shares issued to PAA by PAGP.
- Reverse Splits: AAP and PAGP will execute reverse splits to align the number of outstanding units/shares on a one-to-one basis with the underlying PAA Common Units held by AAP.
- Exchange Rights: Holders of AAP Class A units (other than PAGP and GP LLC) will retain the right to exchange units for PAGP Class A shares or redeem for PAA Common Units.
Guidance, Outlook, and Risks
Conditions Precedent: The transaction is subject to customary closing conditions, including:
- Approval by a majority of PAGP Class A and Class B shareholders.
- No laws or government orders restraining the transaction.
- Delivery of a third-party legal opinion regarding the Investment Company Act of 1940.
Termination Rights: The agreement may be terminated if closing does not occur by January 15, 2017, if shareholder approval is not obtained, or if a material breach of representations or covenants occurs and is not cured within 30 days.
Outlook: Both PAA and PAGP will continue to be publicly traded following the closing. The filing urges investors to read the upcoming proxy statement for detailed information.
Investor Verification Checklist
- Verify the outcome of the PAGP shareholder vote required to approve the Simplification Agreement.
- Confirm the final closing date and whether the January 15, 2017, termination deadline is met.
- Review the upcoming proxy statement for details on the new governance structure and Class C share mechanics.
- Monitor the execution of the reverse splits for AAP and PAGP to ensure the one-to-one alignment with PAA units.
- Check for any regulatory approvals or legal opinions regarding the Investment Company Act of 1940.