Business Context and Reporting Period
This Form 8-K, filed on February 11, 2015, by Targa Resources Corp. (TRC), provides supplemental disclosures regarding the proposed Agreement and Plan of Merger with Atlas Energy, L.P. (ATLS) and Atlas Pipeline Partners, L.P. (APL). The filing updates the definitive joint proxy statement/prospectus filed on January 22, 2015. A special meeting of TRC shareholders is scheduled for February 20, 2015, to vote on the stock issuance proposal and an adjournment proposal.
Key Financial Metrics and Valuation
The filing does not report standard operating financial metrics such as revenue, profit, cash flow, or debt for a specific reporting period. Instead, it details valuation methodologies used by financial advisor Wells Fargo Securities:
- TRC Discounted Cash Flow (DCF) Analysis: Applied discount rates ranging from 9.00% to 9.75% and terminal multiples of 2018E GP/IDR Net Cash Flow ranging from 17.5x to 27.5x.
- Implied Equity Value: The DCF analysis indicated an implied equity valuation reference range per share of TRC common stock of $116 to $169.
- Market Comparison: This range is compared to the TRC common stock closing price of $121.65 on October 10, 2014.
- TRP Ownership: TRC owns approximately 12.9 million TRP common units, valued at $63.98 per unit on October 10, 2014, resulting in an implied aggregate equity value of $828.3 million added to the analysis.
Material Changes and Disclosures
The filing amends and restates several sections of the proxy statement to clarify the background of the transaction and financial analyses:
- Transaction Background: Clarifies that Citi described the Atlas entities and discussed structuring a transaction involving the purchase of ATLS by TRC and APL by TRP. It also restates management's reasons for supporting the merger, citing strategic fit, financial benefits, and access to assets not available through organic growth.
- Financial Advisor Engagement: Confirms that Wells Fargo Securities was formally engaged as financial advisor to the TRC Board on October 11, 2014, though they had been advising prior to this date.
- Compensation: Discloses that the TRC Board has sole discretion to pay an additional fee of up to $2,000,000 to Wells Fargo Securities upon consummation of the merger, though criteria for this payment have not yet been determined.
- Management Interests: Notes that TRC directors and executive officers own approximately 10% of outstanding shares and may benefit from increased liquidity or potential compensation increases post-merger. No decision has been made regarding transaction bonuses for the merger team.
Guidance, Risks, and Contingencies
The filing includes a cautionary note regarding forward-looking statements and outlines significant risks associated with the proposed transaction:
- Approval Risk: The transaction is contingent upon approval by ATLS/APL unitholders and TRC stockholders.
- Termination Risk: The merger agreement could be terminated due to a competing proposal or failure to satisfy closing conditions.
- Integration and Synergy Risk: Risks include difficulties in integrating businesses, inability to achieve cost savings or synergies, and unexpected costs.
- Operational Risks: Potential adverse reactions to business or employee relationships, inability to retain key personnel, and changes in economic or industry conditions.
- Legal Risks: Potential litigation or governmental investigations related to the merger.
Investor Verification Checklist
- Verify the final vote outcome of the special meeting scheduled for February 20, 2015.
- Review the definitive joint proxy statement/prospectus for full details on the merger consideration and pro forma financial information.
- Monitor for any decisions regarding the $2,000,000 additional fee to Wells Fargo Securities and potential transaction bonuses for management.
- Assess the strategic fit and integration plan for ATLS and APL assets as described in the proxy materials.
- Confirm the status of regulatory approvals and other closing conditions required for the merger.