Why Cheniere Is Acquiring Cheniere Holdings

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Cheniere Energy Inc. (NYSE: LNG) announced Friday morning that it has offered to acquire all publicly held shares of Cheniere Energy Partners LP Holdings (NYSEMKT: CQH) that it does not already own for Cheniere stock valued at $21.90 per share of Cheniere Holdings. Cheniere already owns 80.1% of Cheniere Holdings outstanding shares, and the offer values the holding company at $5.07 billion.

Cheniere’s offer included 0.5049 shares of its stock in exchange for each share of Cheniere Holdings stock, and represents a premium of 3% to Thursday’s closing price of Cheniere Holdings stock.

Cheniere CEO Jack A. Fusco remarked:

We believe the proposed transaction is attractive to investors in Cheniere Partners Holdings who, as new [Cheniere] shareholders, would have the opportunity to participate in the future success of the entire Cheniere complex. In addition, shareholders of Cheniere Partners Holdings would receive an attractive premium over its recent trading levels and a significant increase in the trading liquidity of their investment.

Cheniere Holdings’ single asset is a stake of about 56% in Cheniere Energy Partners LP (NYSEMKT: CQP). In a Form S1 filing before Cheniere Holdings’ initial public offering, the company said:

Cheniere Holdings was formed to hold the Cheniere Partners limited partner interests that are owned by Cheniere, thereby allowing Cheniere to segregate its lower risk, stable, cash flow generating assets from its higher risk, early stage development projects and marketing activities. Cheniere believes that an initial public offering of equity interests in Cheniere Holdings to fund Cheniere’s early stage development projects and marketing activities will provide Cheniere with a lower-cost source of capital funding than other alternatives.

Now that Cheniere has begun shipping liquefied natural gas from its Sabine Pass plant, those early-stage projects are behind the company and Cheniere Holdings is no longer needed. Cheniere Holdings came public in December 2013 at $20 per share, and the shares closed at $21.26 on Thursday. Fusco’s claim of increased liquidity certainly has the ring of truth to it, but as we read the covenants covering Cheniere Holdings, this is an offer that independent shareholders (who own less than 20% of the outstanding shares) can’t refuse.

Shares of Cheniere Holdings traded up about 3.3% at $21.97 Friday morning, in a 52-week range of $12.04 to $22.33. The consensus 12-month price target was $25.44.