Business Context and Reporting Period
This Form 8-K, dated November 2, 2015, reports a material definitive agreement entered into by Targa Resources Corp. (TRC) and Targa Resources Partners LP (TRP). The filing details a proposed merger in which TRC will acquire all outstanding common units of TRP not already owned by TRC or its affiliates. Upon completion, TRP will continue as a surviving subsidiary of TRC.
Key Financial Metrics and Transaction Terms
The filing does not provide historical revenue, profit, cash flow, or debt metrics for the reporting period. The primary financial terms disclosed relate to the proposed transaction:
- Exchange Ratio: Each TRP common unit will be converted into the right to receive 0.62 shares of TRC common stock.
- Preferred Units: Outstanding 9.00% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units will remain issued and outstanding in TRP.
- Termination Fees: Depending on the circumstances of termination, either party may be obligated to pay a termination fee of $96,500,000 or a payment for expenses up to $10,000,000.
- Existing Ownership: Prior to the merger, TRC indirectly owns approximately 8.8% of outstanding TRP common units, all incentive distribution rights, and a 2% general partner interest.
Material Changes and Transaction Structure
The material change is the execution of the Merger Agreement, which alters the corporate structure by consolidating TRP into TRC. Key structural elements include:
- Merger Mechanism: A subsidiary of TRC (Spartan Merger Sub LLC) will merge with and into TRP.
- Equity Awards: Outstanding TRP Performance Units will be automatically converted into TRC common stock awards based on the 0.62 exchange ratio.
- Board Recommendations: Both the TRC Board and the TRP GP Board have approved the agreement and recommend approval by their respective shareholders and unitholders.
Guidance, Risks, and Conditions
The filing outlines several conditions precedent to the closing of the merger and associated risks:
- Conditions to Closing: Approval by a majority of TRP common unit holders and TRC stockholders; expiration of the HSR Act waiting period; effectiveness of a Form S-4 registration statement; and NYSE listing approval for the new shares.
- Forward-Looking Risks: Management notes uncertainties regarding weather, political and economic conditions, and market demand for natural gas, natural gas liquids, and crude oil.
- Board Duties: Both boards reserve the right to change their recommendation if a superior proposal is received or a material unforeseen event occurs.
- Documentation: Investors are directed to the upcoming joint proxy statement/prospectus (Form S-4) for complete financial and transaction details.
Investor Verification Checklist
- Verify the final approval vote results from TRP unitholders and TRC stockholders.
- Confirm the effectiveness of the Form S-4 registration statement and the joint proxy statement/prospectus.
- Monitor the status of the Hart-Scott-Rodino (HSR) antitrust waiting period.
- Review the full text of the Merger Agreement (Exhibit 2.1) for specific representations, warranties, and termination rights.
- Assess the impact of the 0.62 exchange ratio on current market valuations of both entities.