The projected proceeds of the sale are put at about $825.1 million, which comes to roughly $36.24 per unit.  The most recent price was $39.80 and the 52-week range is $30.78 to $47.34.  Enterprise noted that the proceeds will be used for general partnership purposes, including funding growth capital projects and that the sale should close in January 2012.

Enterprise Products Partners L.P. is already massive with a $39 billion market capitalization, while Energy Transfer Equity has a market value of about $8.9 billion.  Enterprise units trade at $45.52 and the consensus analyst price target objective from Thomson Reuters is $49.11.  Energy Transfer Equity trades at $39.80 and the consensus price target objective.

This matters for “dividend investors” even though these MLP payouts are referred to as distributions of both income and a return of capital component.  We just recently gave an MLP sector outlook for 2012 for the 24/7 Wall St. 2012 Model Dividend Portfolio.

JPMorgan Alerian MLP Index ETN (NYSE: AMJ) and ALPS Alerian MLP ETF (NYSE: AMLP) both include these and many other key ETFs, and Kayne Anderson MLP Investment Company (NYSE: KYN) lists both of these MLPs in the top ten holdings with Enterprise representing 9.1% and Energy Transfer representing 4.2%.

What Enterprise did not say is that the proceeds are likely to allow the MLP to keep boosting payouts ahead.  It is quarter after quarter that these MLPs keep hiking their quarterly payouts, and that is true for Enterprise as well.

JON C. OGG

What’s interesting about this deal, from an alternative energy standpoint, is that it shines a light on efforts to allow alt-energy companies to adopt the MLP structure as a way to attract private investment into the sector. This could be a very interesting way to get government out of the business of financing clean energy projects.

A report issued last November by the Center for American Progress and the Coalition for Green Capital recommended that allowing renewable energy to form partnerships similar to MLPs and REITs.  By law, MLPs must derive at least 90% of their income from eligible investments in natural resources, commodities, or real estate. The report argues that renewable energy sources such as wind and sunshine are among the natural resources that should be considered for inclusion.

The problems that the recommendation is trying to solve are the lack of certainty in both the tax code and public policy related to renewable energy financing, and the lack of long-term, low-cost financing available to renewable energy businesses. Allowing MLP structures is only a piece of a the report’s overall recommendations for financing renewable energy, but it’s worth a closer look by itself.

One benefit of this approach is that it does not rely on setting a price for carbon. Cap-and-trade proposals have gotten no traction in Congress and proposals for a carbon tax are even less popular. Where the clean energy MLP idea may have the best application is in the transmission and distribution of renewably-generated electricity. In other words, the grid.

The estimated cost to upgrade the US grid ranges from $500 billion on up. Any chance that the federal government will be able to provide that amount of support directly or in the form of loan guarantees is certainly no better than 50-50. More likely is that concern about federal deficits and debt will push renovation and construction of the grid out for years.

Allowing an MLP/REIT-type setup could serve two purposes. First, it is effectively a corporate tax cut. This concept is very popular with some politicians. Second, it is a tax increase on investors, a concept which is quite popular with other politicians. Both sides could claim victory. From a political perspective, what could be finer?

Second, it could lead to a privatization of the national grid. That may not be a universally popular idea, but its merit is that it eliminates the federal government’s responsibility for paying out gobs of money it does not have and it would instill some certainty into renewable energy projects. Federal and state regulation would still exist, of course, but the virtually guaranteed return on investment that comes with MLPs and REITs could be very attractive to investors.

There probably won’t be much action on this idea until after the 2012 elections. But its simplicity and attractiveness to both ends of the political spectrum may give it a chance of being adopted.

If you think that alternative energy financing is dead, let us consider this week’s other big deal.  With a Department of Energy-backed loan, Bank of America Corporation (NYSE: BAC) is financing a massive project that is being undertaken in solar where PV modules are being installed on top of buildings owned and operated by Prologis (NYSE: PLD) and being installed by NRG Energy, Inc. (NYSE: NRG).  The beat goes on.

Paul Ausick

Energy Transfer Equity, L.P. (NYSE: ETE) and Southern Union Co. (NYSE: SUG ) announced today that the two companies have entered a definitive merger agreement wherein Energy Transfer Equity will acquire Southern Union for $7.9 billion.  The transaction price includes transfer of Southern Union’s debt of $3.7 billion to the combined company.  The merger gives rise to an integrated midstream company in the natural gas industry.

Unanimously approved by the Boards of Directors of both companies, the merger agreement calls for Southern Union stockholders to receive newly issued Series B Units of Energy Transfer Equity at $33.00 per share, approximately $4.2 billion, in exchange for Southern Union common shares.

Southern Union’s common shares closed at $28.26 on Wednesday, June 15, 2011.  Accordingly, the implied $33.00 value of ETE’s Series B Units reflects a 17 percent premium over Southern Union’s closing price. The Series B Units will list on the NYSE and, at $33 per share, are expected to receive an annualized of 8.25% or better.

Exxon Mobil Corporation (NYSE: XOM) stunned the markets when the integrated oil giant made an all-stock acquisition of XTO for some $41 billion.  A deal from Chesapeake Energy Corp. (NYSE: CHK) where it acquired Bronco Drilling was hardly a footnote in size.  Temasek Holdings Limited, RRJ Capital and Chesapeake Energy Corp. (NYSE: CHK) also signed an agreement to acquire 74.2% stake in Frac Tech Services, LLC from the founders in what was called a recapitalization transaction earlier this year. And Chevron Corporation (NYSE: CVX) made an acquisition of Atlas in 2010.

One company that remains independent and has been speculated as a buyout candidate before is Petrohawk Energy Corporation (NYSE: HK).  It has a market capitalization of $7.26 billion and at $23.91 it has a 52-week range of $14.32 to $27.45.

For a source of energy that is currently not so friendly to natural gas, it is amazing to see so many mergers.  What is obvious is that the trend points to natural gas whether it is popular today or not.

JON C. OGG

Women, who  make up about 40% of the students at elite business schools,  have an especially difficult time moving into the ranks of senior management at America’s largest public companies. New data from the research from the nonprofit Catalyst shows that 60 of the Fortune 500 corporations have no female directors. Out of the same group, 136 companies have no women among their top five executives.  Moreover, there are 26 Fortune 500 firms which have neither a female board member nor a woman in executive management. The data came from proxy statements filed as of June 30, 2010.  24/7 Wall St. research found that four companies have added a female director since then: Philip Morris, Blockbuster, Virgin Media, and Synnex.

After we reviewed the Catalyst data, the companies were categorized by industry, and 24/7 Wall St. examined their corporate websites to see whether they had any women in top management at all. When we did find someone, they were usually in human resources, public relations, investor relations, or accounting.

The figures are outrageous and point to lingering misogyny in the board rooms and executive suites of a number of America’s largest companies. It is incomprehensible how public companies in the 21st Century can manage to exclude women from such critical roles.

1) Autoliv (ALV)
Autoliv makes and distributes automotive safety products, such as airbags and seat belts.
-Company lists no women on management team.

2) Cameron International (CAM)
Cameron International is a global provider of flow equipment products, systems, and services to oil, gas, and process industries.
-Rozlin Larkey – Vice President of Human Resources
-Grace B. Holmes – Corporate Secretary

3.) CC Media Holdings (CCMO.PK)
CC Media Holdings, the parent company of Clear Channel Communications, is a media company that works in radio and advertising.
-Company lists no women on management team.

4.) CHS (CHSCP)
CHS, which occupies the 91st position on the Fortune 500, is a diversified energy, grains, and food company.
-Company lists no women on management team.

5.) Emcor Group (EME)
Emcor group designs and constructs electrical and mechanical systems, including transformers, generators, and power cables.
-Mava K. Heffler – Vice President of Marketing and Communications

6.) Energy Transfer Equity (ETE)
Energy Transfer Equity, which owns the general partner of Energy Transfer Partners, transports natural gas throughout the United States.
-Company lists no women on management team.

7.) EOG Resources (EOG)
EOG Resources is one of the largest independent natural gas and oil companies in the United States.  As of the end of 2009, it employed approximately 2,100 people.
-Maire Baldwin – Vice President of Investor Relations
-Patricia Edwards – Vice President of Human Resources
-Ann Janssen – Vice President of Accounting

Morningstar’s Paul Larson gave several sector picks today in the MLP sector, most of which are true MLPs.  Larson outlined Energy Transfer Equity, L.P. (NYSE: ETE).  It owns the general partner of two other MLPs, Energy Transfer Partners (NYSE: ETP) and Regency Energy Partners (NASDAQ: RGNC) in natural gas transportation businesses and ETP also owns a propane distribution business.

Enterprise GP Holdings L.P. (NYSE: EPE) was also given a positive outlook from Larson, and this is involved in a stock merger with Enterprise Products Partners L.P. (NYSE: EPD) that is still a deal pending unitholder approval.

Larson also likes TransCanada Corp. (NYSE: TRP), although this is a pipeline company in Canada that is not structured as a MLP and its dividend yield of 4.1% is more straightforward without many of the traditional tax headaches associated with an MLP.  Larson called it undervalued with a fair value estimate of $43.00 versus $37+ today.  Another of his alternative picks is Kinder Morgan Management LLC (NYSE: KMR) as being basically a different share class of one of the largest MLPs, Kinder Morgan Energy Partners.  Full Larson/Morningstar presentation

There are a couple of other means of investing in MLPs in a diversified manner that other pickers rarely make note of.  Kayne Anderson MLP Investment Company (NYSE: KYN) and JPMorgan Alerian MLP Index ETN (NYSE: AMJ) offer diversification with a return of capital component that still replicates income for investors.

Kayne Anderson MLP Investment Company (NYSE: KYN) is a closed-end equity mutual fund launched and managed by KA Fund Advisors, LLC that invests in the public MLP sector.  Its dividend can fluctuate and a recently announced payout of $0.48 per share for the last quarter is anticipated that a significant portion of the distribution will be treated as a return of capital for tax purposes.  That $0.48 rate has been paid for seven quarters (down from $0.50 before) and it has sold more shares and the current implied yield (again, not exact because return of capital) and its $26.10 share price compares to a 52-week trading range of $20.03 to $27.54.

JPMorgan Alerian MLP Index ETN (NYSE: AMJ) is an exchange-traded note that has a spotty dividend history since its 2009 launch.  If you smooth out the dividend it would have an implied yield of close to 5.2%.  At $33.95, the 52-week trading range is $24.26 to $34.15.

Before you chase these yields just as routine dividends, you will need to learn the tax structure, as well as the limitations and implications in investing in this asset class.

JON C. OGG

Jon C. Ogg
June 6, 2007