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February 25, 2011
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Energy storage and transportation firm Enterprise Products Partners L.P. (EPD) has offered to acquire midstream energy partnership Duncan Energy Partners L.P. (DEP) for about $1.8 billion in stock and debt. The impending proposal, which is being reviewed by Duncan Energy, will create an outfit with a diverse asset base, significant distribution payout and a more liquid security.
Houston-based Enterprise Products already owns 58% of Duncan Energy and its general partner, DEP Holdings LLC. The transaction, if successful, will allow Enterprise Products to absorb the 23.4 million Duncan Energy units not already owned by it, and expand its operations.
Per the deal, Duncan Energy unitholders would get 0.9545 of Enterprise Products’ common unit for each share they hold, representing a total value of approximately $1 billion. At Duncan Energy’s Tuesday’s closing stock price of $32.56, the deal values the partnership’s units at $42 each, a 29% premium. Additionally, Enterprise Products will assume $788 million in debt.
The largest publicly traded partnership and a major provider of midstream energy services, Enterprise Products has more than 50,000 miles of pipelines, mainly in the U.S. and Gulf of Mexico. On the other hand, Duncan Energy, which transports and stores natural gas, oil, refined products and petrochemicals, has a formidable presence in Texas and Louisiana.
During the last two years, Enterprise Products has made several investments to expand its pipeline network and we see the proposed Duncan Energy transaction as a natural progression to this. Duncan Energy – formed by Enterprise in September 2006 – will add about 9,400 miles of gas pipelines to Enterprise Products' already impressive portfolio of onshore and offshore pipelines.
Both Enterprise Products and Duncan Energy units currently retain a Zacks #3 Rank, which translates into a short-term 'Hold' rating. We are also maintaining our long-term "Neutral" recommendation on the stocks.
Read the full analyst report on "EPD"
Read the full analyst report on "DEP"
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