Merger Changes Middle Ranks of Pipeline MLPs

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Crestwood Midstream Partners L.P. (NYSE: CMLP), Inergy L.P. (NYSE: NRGY) and Inergy Midstream L.P. (NYSE: NRGM) today announced that the companies have agreed to merge in a deal that will create a pipeline master limited partnership (MLP) with a market cap of nearly $6.5 billion. The deal is structured as a merger of equals, with the current chairman/CEO/president of Crestwood taking the reins of the merged company after the deal closes.

As pipeline MLPs go, the combined company will remain well in the middle of the pack as far as size goes. The largest MLP is Enterprise Products Partners L.P. (NYSE: EPD), with a market cap of more than $54 billion. Crestwood, before the merger, is one of the smallest MLPs, with a market cap of just $1.22 billion.

Size really matters to a pipeline MLP. The firms need constant growth in order to fund quarterly distributions to unitholders, and mergers are a key method of growth. Building new pipelines can be an arduous undertaking (see, for example, TransCanada Corp. (NYSE: TRP) and the Keystone XL pipeline).

In addition to Enterprise Products at least six other MLPs check in with market caps above $10 billion:

  • Kinder Morgan Energy Partners L.P. (NYSE: KMP), $33.26 billion
  • Williams Partners L.P. (NYSE: WPZ), $20.41 billion
  • Plains All American Pipeline L.P. (NYSE: PAA), $19.31 billion
  • Energy Transfer Partners L.P. (NYSE: ETP), $14.31 billion
  • Magellan Midstream Partners L.P. (NYSE: MMP), $11.63 billion
  • Oneok Partners L.P. (NYSE: OKS), $11.34 billion

The newly merged company will be larger than some established MLPs though:

  • Sunoco Logistics Partners L.P. (NYSE: SXL), $6.26 billion
  • Targa Resources Partners L.P. (NYSE: NGLS)
  • NuStar Energy L.P. (NYSE: NS), $3.84 billion
  • Holly Energy Partners L.P. (NYSE: HEP), $2.1 billion

Prior to the announced merger, Crestwood paid a quarterly distribution of $0.51 and Inergy Midstream paid $0.395. Inergy LP paid $0.29 a quarter. The combined company won’t pay the sum of that, but it’s possible that the new company can approach the $0.67 a quarter paid out by Enterprise. Crestwood’s current distribution is already close to Plains’ $0.575.

Shares of Crestwood are up 4.8%, at $25.00 in a 52-week range of $19.90 to $29.12.

Shares of Inergy Midstream are down 4.8%, at $23.00 in a 52-week range of $18.31 to $26.01.

Shares of Inergy are up 8.5% to $23.89, after posting a new 52-week high of $24.64 earlier today. The 52-week low is $16.40.

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