Phillips 66 has agreed to buy its publicly-traded MLP partnership, Phillips 66 Partners for $3.4 billion in an all-stock deal. This continues the recent trend of MLP’s being brought back in-house.
The partnership was originally spun off in July 2013. At the end of last year, Phillips 66 owned 74% of the common units of the partnership, and controlled the general partnership that managed the MLP. 98% of the revenues of the MLP were generated from Phillips 66.
Phillips 66 signaled back in February that it was considering a takeover of the MLP.
Companies spinning off their midstream assets into a separate master limited partnership was all the rage about 10-15 years ago. It was sold to retail investors as a high-yield, low risk play. Unfortunately that proved not to be the case, as many entered the energy downturn in late 2014 too highly leveraged. That led to distribution cuts and the sector fell out of favor. (The Phillips MLP has not cut its dividend since it has been a public company).
In addition, in some cases, the retail unitholders suffered at the hands of the controlling general partner. The tax reform legislation passed in 2017 also reduced the tax benefits that MLPs receive.
The transaction is expected to close in the first quarter of 2022.