Energy Pipeline Firm Takes $4 Billion Private Equity Buyout
Energy pipeline operator Tallgrass Energy L.P. (NYSE: TGE) announced Tuesday morning that it has accepted an all-cash offer of $22.45 per share from Blackstone Infrastructure Partners, an affiliate of private equity firm Blackstone Group Inc. (NYSE: BX), to acquire all outstanding shares in the midstream company. The deal represents a premium of about 23% to Tallgrass’ closing price on Monday and values the company at around $4 billion.
The Tallgrass board has unanimously approved the transaction, which is expected to close in the second quarter of 2020. The transaction is subject to approval by a majority of the holders of the company’s Class A and Class B shares, including the 44% of Tallgrass stock owned by the acquirer.
According to Insider Monkey, Tallgrass was included in the portfolios of 20 hedge funds at the end of the third quarter, up from inclusion in 13 at the end of the prior quarter.
While midstream master limited partnerships (MLPs) reported good third-quarter results, the group has been taking a serious bath since then. Higher interest rates and rising crude oil prices have hurt MLPs far more than they have midstream corporations like Kinder Morgan Inc. (NYSE: KMI) that have better access to capital.
Finally, it appears, the market has decided that the MLPs have been oversold. There has been an increase in short covering and there has been more insider buying at Enterprise Products Partners LP (NYSE: EPD), the country’s largest MLP, that is said to be considering converting to a corporation.
Tallgrass had been trading down by about 25% for the year to date prior to Blackstone’s offer. A year ago, the stock traded at over $24, so Blackstone gets a bargain and Tallgrass gets a premium that basically cures a year’s worth of losses. What’s not to like?
Shares of Tallgrass traded up about 21% just ahead of the noon hour Tuesday, at $22.11 in a 52-week range of $14.28 to $25.96. The consensus 12-month price target on the stock was $19.50 and the annual dividend of $2.14 represents a yield of 11.63%.