Plains All American Pipeline, L.P. & Plains GP Holdings Announce Successful Results of Simplification Process & Related Actions
July 11 2016 - 06:22PM
Business Wire
Improves Cost of Capital; Strengthens
Distribution Coverage and Credit Profile; Simplifies
Structure
Conference Call Scheduled For Tuesday, July
12, 2016 at 7:30 a.m. CT
Plains All American Pipeline, L.P. (NYSE:PAA) announced it has
entered into a definitive agreement (the “Simplification
Transaction”) with Plains AAP, L.P. (“AAP”), a controlled affiliate
of Plains GP Holdings, L.P. (NYSE: PAGP), to permanently eliminate
PAA’s incentive distribution rights and the economic rights
associated with PAA’s 2% general partner interest in exchange for
245.5 million newly issued PAA common units (implied exchange ratio
of approximately 0.3755 PAA common units per AAP Class A unit) and
the assumption of all of AAP’s outstanding debt (currently $593
million). The implied transaction value is approximately $7.2
billion. Upon closing of the Simplification Transaction, PAGP and
its UP-C structure will remain in place, and AAP’s 245.5 million
units of PAA will represent approximately 34.8% ownership in PAA on
a fully diluted basis.
In a separate release today, PAA and PAGP announced quarterly
distributions with respect to the second quarter of 2016 to be paid
in August, which were unchanged from the first quarter
distributions paid in May. PAA also announced that effective with
the third quarter distribution to be paid in November, PAA intends
to pay a quarterly distribution of $0.55 per common unit ($2.20 per
unit on an annualized basis). This equates to a 21% reduction to
the current quarterly payout per PAA common unit. Pro forma for the
Simplification Transaction, but excluding the effect of PAGP’s
reverse split described herein for comparative purposes, the
quarterly distribution payable in November to the holders of PAGP
Class A shares for the third quarter of 2016 will be $0.2065 per
Class A share ($0.8260 annually), representing an 11% reduction
from the current quarterly distribution per PAGP Class A share.
Greg Armstrong, Chairman and CEO of Plains All American, stated,
“We are pleased to announce this simplification transaction and
related actions, which accomplish several important objectives for
PAA and its stakeholders, including PAGP. Collectively, these
actions will simplify PAA’s capital structure, better align the
interests of its equity stakeholders, improve its overall credit
profile, reduce its cost of incremental capital and improve its
distribution coverage. As a result, PAA will be better positioned
to capitalize on attractive growth opportunities and manage its
business over the long term.”
With respect to the Simplification Transaction, PAA and PAGP
also announced the following:
- The Simplification Transaction is
expected to close in the fourth quarter of 2016, subject to
customary closing conditions, including the approval of a majority
of PAGP’s shareholders (Classes A and B considered together), which
approval will be solicited at a special meeting to be held prior to
closing. A proxy statement will be filed with the SEC and mailed to
all of PAGP’s Class A and B shareholders prior to the special
meeting. PAGP shareholders representing a majority of the
outstanding Class A and B shares of PAGP have entered into a voting
agreement in support of the Simplification Transaction.
- The Simplification Transaction was
evaluated, negotiated and approved on behalf of PAA by a conflicts
committee established by PAA’s general partner (“PAA Conflicts
Committee”) and on behalf of PAGP by the PAGP Board.
- In addition, PAA and PAGP received a
tax opinion that the transaction is generally not expected to be
taxable to PAA or its equity holders (including AAP). In addition,
the Simplification Transaction is generally not expected to be
taxable to PAGP or its shareholders.
- As a result of the Simplification
Transaction, PAGP Class A shareholders and PAA common and preferred
unitholders will have the right to participate in the election of
directors of the parent company board under a unified governance
structure. Under the current structure, PAA common unitholders are
not eligible to participate in the election of directors of the
general partner of PAGP and PAGP Class A shareholders only
participate in such elections following a reduction in ownership of
the private general partner owner group to below 40%. The first
meeting to elect directors is expected to occur during 2018.
- Upon closing of the Simplification
Transaction, PAA will have approximately 643 million common units
outstanding (706 million assuming conversion of PAA’s Series A
Preferred units).
- In connection with the closing of the
Simplification Transaction, AAP will execute a reverse split to
adjust the number of its outstanding units to equal the number of
PAA common units held by AAP. Simultaneously, PAGP will also
execute a reverse split to adjust the number of PAGP Class A shares
outstanding to equal the number of AAP units it owns following
AAP’s reverse split.
- Holders of AAP Class A units other than
PAGP will continue to have the right to exchange their AAP
ownership and related voting rights for a PAGP Class A share on a
one-for-one basis or, alternatively, to redeem such ownership and
related rights for their proportionate share of PAA common units
held by AAP, subject to certain limitations.
- Barclays acted as lead financial
advisor to the Plains entities and management and Citigroup also
acted as a financial advisor in connection with the transaction.
Tudor, Pickering, Holt & Co. acted as financial advisor to the
PAA Conflicts Committee, and Jefferies LLC acted as financial
advisor to the PAGP Board. Legal advisors included Vinson and
Elkins LLP for PAGP, Richards, Layton & Finger, P.A. for the
PAA Conflicts Committee and Baker Botts L.L.P. as special counsel
for the PAGP Board.
PAA will conduct a conference call on Tuesday, July 12, 2016 to
further discuss the Simplification Transaction, quarterly
distributions, PAA’s confirmation of its 2016 adjusted EBITDA
guidance and related matters. The conference call will be held at
8:30 a.m. ET (7:30 a.m. CT).
Webcast Access Instructions
Access to the live webcast is available at either of the
addresses below. Registering for the webcast in advance is
recommended.
www.plainsallamerican.com (Navigate to: Investor Relations/
either “PAA” or “PAGP”/ News & Events/ Conference Calls)
or
https://event.webcasts.com/starthere.jsp?ei=1089822
The slide presentation accompanying the conference call will be
posted a few minutes prior to the call at www.plainsallamerican.com
under the “Investor Relations” sections of the website (Navigate
to: Investor Relations/ either “PAA” or “PAGP”/ News & Events/
Conference Calls).
Webcast Replay Instructions
An audio replay in MP3 format will be available within two hours
after the end of the call at www.plainsallamerican.com under the
“Investor Relations” sections of the website (Navigate to: Investor
Relations/ either “PAA” or “PAGP”/ News & Events/ Conference
Calls).
Additional Information and Where to Find It
The Simplification Transaction will be submitted to the
shareholders of PAGP for their consideration, and PAGP will file
with the SEC a proxy statement to be used by PAGP to solicit the
required approval of its shareholders in connection with the
Simplification Transaction. PAGP also plans to file other documents
with the SEC regarding the proposed Simplification Transaction.
INVESTORS AND SECURITY HOLDERS OF PAGP ARE URGED TO READ THE PROXY
STATEMENT AND OTHER RELEVANT DOCUMENTS THAT WILL BE FILED WITH THE
SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
SIMPLIFICATION TRANSACTION. Security holders may obtain free copies
of the proxy statement and other documents containing important
information about PAGP, once such documents are filed with the SEC,
through the website maintained by the SEC at http://www.sec.gov.
Copies of the documents filed with the SEC by PAGP will be
available free of charge on PAGP’s website at ir.pagp.com or by
contacting PAGP’s Investor Relations Department at (866)
809-1291.
Participants in the Solicitation
PAGP and the directors and executive officers of its general
partner (“PAGP GP”), and PAA and the directors and executive
officers of the general partner of the sole member of its general
partner, Plains All American, GP LLC (“GP LLC”), may be deemed to
be “participants” in the solicitation of proxies from PAGP’s
shareholders in connection with the Simplification Transaction.
Information about the directors and executive officers of PAGP GP
is set forth in PAGP’s Annual Report on Form 10-K and information
about the directors and executive officers of GP LLC is set forth
in PAA’s Annual Report on Form 10-K, which were each filed with the
SEC on February 25, 2016, and PAGP’s and PAA’s subsequent Quarterly
Reports on Form 10-Q. These documents can be obtained free of
charge from the sources indicated above. Other information
regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security
holdings or otherwise, will be contained in the proxy statement
that PAGP intends to file with the SEC.
Forward Looking Statements
Except for the historical information contained herein, the
matters discussed in this press release consist of forward-looking
statements, including statements regarding the timing and expected
benefits and impact of the Simplification Transaction. These
forward-looking statements are based on PAGP’s and PAA’s current
views with respect to future events, based on what we believe to be
reasonable assumptions. Actual results may differ significantly
because of risks and uncertainties that are difficult to predict
and that may be beyond the control of PAGP and PAA, including the
satisfaction of the conditions precedent to the closing of the
Simplification Transaction. You should read PAGP’s and PAA’s Annual
Reports on Form 10-K for the year ended December 31, 2015 and their
most recently filed Quarterly Reports on Form 10-Q for a more
extensive list of factors that could cause actual results or
outcomes to differ materially from the results or outcomes
anticipated in the forward-looking statements. PAGP and PAA
undertake no obligation to revise any forward-looking statements to
reflect events or circumstances occurring after today’s date.
PAA is a publicly traded master limited partnership that owns
and operates midstream energy infrastructure and provides logistics
services for crude oil, natural gas liquids (“NGL”), natural gas
and refined products. PAA owns an extensive network of pipeline
transportation, terminalling, storage and gathering assets in key
crude oil and NGL producing basins and transportation corridors and
at major market hubs in the United States and Canada. On average,
PAA handles over 4.6 million barrels per day of crude oil and NGL
in its Transportation segment. PAA is headquartered in Houston,
Texas.
PAGP is a publicly traded entity that owns an interest in the
general partner and incentive distribution rights of PAA, one of
the largest energy infrastructure and logistics companies in North
America. PAGP is headquartered in Houston, Texas.
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Plains All American Pipeline, L.P. and Plains GP HoldingsRyan
Smith, (866) 809-1291Director, Investor Relations
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