Tag Archives: M&A

Houston MLP delisted after $6.5 billion takeover

Buckeye Partners has been delisted after its takeover by IFM Global Infrastructure Fund was completed. The $6.5 billion deal was originally announced in May 2019.



The original Buckeye Pipe Line Company was founded in 1886 as part of Standard Oil and became a publicly-owned independent company in 1911 after Standard Oil was broken up. In 1964, the company was acquired by a subsidiary of the Pennsylvania Railroad. In 1986, it was reorganized into a master limited partnership (MLP) and went public the same year.

Buckeye has 6,000 miles of pipeline and 115 liquid petroleum products terminals in the US and the Caribbean. In 2018, it had revenues of $4.1 billion. The company has its head office in Greenway Plaza.

Breakup of Standard Oil

Standard Oil was established by John D Rockefeller and Henry Flagler in 1870. In 1911 the Supreme Court ordered it to be broken up into 34 smaller companies. This included;

  • Standard Oil of New Jersey – later merged with Humble Oil to become Exxon
  • Standard Oil of New York – later merged with Vacuum to become Mobil
  • Standard Oil of California – renamed as Chevron.
  • The Ohio Oil Company – renamed as Marathon.

Background to the deal

In early 2018, the Board of the partnership decided to pursue strategic alternatives given that publicly-traded MLPs were out-of-fashion with investors. The company had discussions with various interested parties through May 2019.

IMF agreed to pay $41.50 per unit, all in cash. That represented a premium of 27.5% over the closing price of the partnership units prior to the announcement.

Equity awards vest

Equity options have vested on completion of the transaction and will be settled in cash. That means that CEO Clark Smith will receive $16.9 million and CFO Keith St. Clair $5.6 million. 7 other members of the executive management team will receive between $2.2 million and $4.8 million each.

If senior executives are also terminated as a result of the merger, they will also receive severance (annual salary plus target annual cash bonus). For CEO Smith that would be $2 million, for St. Clair that would be $1.2 million. The deal closed Friday without any terminations in the senior management group.

You can see the updated list of Houston-area public companies here

SEC filing – Buckeye takeover

Oilfield service companies complete merger

Two Houston-based oilfield companies, C&J Energy Services and Keane Group, have completed their merger. When the deal was originally announced in June 2019, the merger was valued at $1.5 billion. At completion, the companies were worth about $1 billion. The shareholders of each company will own 50% of the equity in the combined company.



The combined group will now be called Nextier Oilfield Solutions and have a stock ticker ‘NEX’. The board will consist of 12 directors, six designated by each party. The chairman is Patrick Murray (ex Chairman of C&J) and the CEO is Robert Drummond (ex CEO of Keane). The C&J CFO, Jan Kees van Gaalen becomes the combined group’s CFO. Greg Powell, the Keane CFO, becomes Chief Integration Officer.

For the six months ended June 30, 2019, C&J had revenues of $1 billion and adjusted EBITDA of $102 million. Keane’s figures were $849 million and $147 million respectively.

Synergies

The companies expect to achieve $100 million in cost synergies within 12 months. $45 million will come from sales, general and administrative expenses. $45 million will come from reduced material spend with $10 million of savings from consolidating real estate.

Mr Powell will serve as the Chief Integration Office for the earlier of (i) 18 months or (ii) the date at which the company achieves $100 million in annualized savings. He is eligible for a performance bonus of $2.6 million upon the achievement of specified performance criteria tied to the realization of synergies.

Background to the deal

In July 2017, Murray, the C&J chairman first met with Scott Wille, a director of Keane and employee of Cerberus to discuss the potential benefits of consolidation in the oilfield services sector. (Cerberus is the PE firm that bought Keane in 2011 and took it public in January 2017).

In the middle of 2018, Keane had discussions with another unnamed competitor about a business combination. When that deal fell apart, discussions with C&J began in earnest in November 2018. Keane briefly resurrected discussions with the unnamed competitor in early 2019 before deciding the merger with C&J was the better deal.

The deal almost fell apart at the end of May 2019 due to C&J’s insistence that it have a 52% / 48% equity split. It was resolved by C&J giving its shareholders a special pre-merger dividend $1 followed by a 50/50 split.

 

SEC filing – completion of merger

 

E&P company delisted after takeover

Isramco, an E&P company with its head office in the Galleria, has been delisted after its takeover by Naphtha Israel Petroleum, an Israeli public company. It’s been a long time coming. Back in March 2018, it was announced that Naphtha was in preliminary stages of evaluating a transaction. The deal was announced in May 2019.



The company was formed in 1982, focusing on exploration and production in offshore Israel. In 1997 it expanded its activities to the United States, which are now mainly in the Permian Basin.

The chairman and co-Chief Executive of Isramco is Haim Tsuff. He also controls Naphtha. Prior to the takeover, Naphtha and other entities controlled by Tsuff owned 73% of Isramco. The value of the takeover was $330 million, though the amount of cash outlay to third parties is $89 million.

The reason for the takeover appears to be a dispute between the company and Isramco Negev 2 Limited Partnership, another entity controlled by Mr Tsuff. The disagreement relates to what costs Negev should be included in its calculation of royalty payments on the Israeli Tamar field to the company.

The company believes it would win in arbitration. The claim against Negev could exceed $45 million. However, a bigger risk is that Negev stops paying Isramco its monthly royalty. In 2018, its royalty revenue was $31 million, or 38% of its total revenues.

You can see the complete list of Houston-area public companies here.

SEC filing – Isramco

 

Houston publicly-traded shell company makes large acquisition

Synthesis Energy Systems, essentially a publicly-traded shell company based in the Galleria area, has agreed to buy Australian Future Energy. The acquisition is an all-stock stock deal that values AFE at $36 million. SES currently owns 36% of AFE.



SES owns proprietary technology that produces synthesis gas from the burning of low-grade coal and using that gas as an input in the production of chemicals such as methanol or ammonia. In the current environment of relatively low oil prices and abundant natural gas, the technology is not able to compete economically.  In its last published quarterly results, the company had zero revenue and shareholders’ equity of $1.3 million.

AFE plans to acquire Australian energy resources such as coal and biomass so that it can produce synthesis gas.

To pay for the acquisition, the company is issuing 3.875 million shares at $6 each. It’s not clear how SES values AFE at $36 million. In its last quarterly results for the three months ending March 31, 2019, SES carried its 36% investment at zero. It also stated that AFE had a net loss of $245,000 for the nine months ending March 31, 2019 and that AFE had total equity of $542,000.

Prior to the announcement of the deal, the share of SES were trading at $1.80. Post market-close on Friday they were trading at $7.50. That would give the company a market capitalization of $10 million.

Earlier this year, SES had agreed to sell its gasification technology to AFE for $5.8 million in cash and 1 million shares in AFE. SES would have kept ownership rights for the technology in China. However the deal collapsed in September.

After the deal closes in 2020, Mr Kerry Packer, current CEO of AFE, will become CEO of SES, and Ron Higson, current COO of AFE, will become COO of SES. David Hiscocks, the Corporate Controller, will stay on but a new CFO will be appointed.

SEC filing – Synthesis Energy Systems

Houston skincare company sells for $845 million

Drunk Elephant has been bought by Shiseido, a Japanese beauty products company, for $845 million.

Tiffany Masterson, a mother of four who lives in the West University area of Houston, founded the company in 2012. She wanted to develop a line of non-toxic skincare products. In her first year of operation, her brother-in-law invested $300,000. The following year, her brother also invested and became President of the company.



Most of the company’s employees and back office functions are based in Newport Beach, California

The brand is now one of the top selling at retailer Sephora. San Francisco PE firm VMG Partners then invested in the business in 2017 and helped grow the brand internationally.

The company has projected revenues of $125 million for 2019. Forbes estimates that Ms Masterson will make $120 million when the deal closes at the end of the year.  She will stay on after the close as the Chief Creative Officer.

https://www.forbes.com/sites/chloesorvino/2019/10/08/hot-skincare-brand-drunk-elephant-sells-for-845-million-minting-founder-a-fortune/#29f315105140

 

 

 

 

Oilfield services company to split into two

TechnipFMC has announced that it will split into two separate publicly-traded companies (currently dubbed SpinCo and RemainCo). This comes less than 3 years after the merger of Technip and FMC in January 2017.



Production v E&C

They are not quite being split in the same way that they came together. The Engineering & Construction arm (primarily the old Technip business) is being spun off from the remaining business that will concentrate on production systems (primarily the old FMC business). However Loading Systems which supplies loading arms for LNG will be part of SpinCo. It was originally part of FMC.

SpinCo will have its head office in Paris and will be listed on the Euronet Paris Exchange. RemainCo will be based in Houston and have listings on the NYSE and the Euronet Paris Exchange.

SpinCo will have revenues of $6 billion and 15,000 employees. RemainCo will have revenues of $7 billion and 22,000 employees. The combined business currently has a market cap of $10 billion.

Failed Synergies

The current CEO, Doug Pferdehirt and current CFO, Maryann Mannen, will transfer to RemainCo. During a conference call today the CEO said;

“There are very few synergies between upstream and downstream. We are seeing the beginning of a shaping of our industry. We believe that what we are creating, others will follow. When you over-integrate, the customer can see you as greedy. We integrate where it clearly adds value to the customer.”

At the time the deal was announced in May 2016, then CEO of Technip, Thierry Pilenko, said;

“We have complementary skills, technologies and capabilities. Together, TechnipFMC can add more value across Subsea, Surface and Onshore/Offshore, enabling us to accelerate our growth.”

Integration costs $231m, Break-up costs ??

The company spent $231 million on integration costs between 2016 and 2018. Since the merger the stock has lost about a third of its value. That’s considerably better than the PHLX Oil Services index that has lost about 66% in that time, but much worse than the S&P 500 that has gained about a third.

I wonder how much it will cost to separate the businesses?

Press release – TechnipFMC split

E&P company now based in Houston after merger

Amplify Energy has completed its merger with Midstates Petroluem in an all-stock merger-of-equals.  The deal was announced back in May.

Midstates was publicly-traded and was based in Tulsa, OK. Now that the Amplify management are running the business, it has its head office in downtown Houston. The publicly-traded entity is now called Amplify Energy.



Amplify Energy is the successor reporting company of Memorial Production Partners, which was publicly-traded until entering Chapter 11 bankruptcy in January 2017. Amplify’s production assets are mainly in East Texas/North Louisiana, the Rockies and California.

Midstates also entered Chapter 11 bankruptcy in April 2016, emerging six months later. The business mainly operates in the Mississippian Lime formation in Oklahoma.

Fir Tree Capital Management, a New York investment firm is the single largest shareholder in both companies. It owns 35% of Amplify and 23% of Midstates. Two executives from Fir Tree are on both boards.

Before the deal was announced, shares were trading at $13. They are currently trading at $4.36 giving the business a market capitalization of $186 million and an enterprise value of $409 million.

The CEO of Amplify is Ken Mariani. He joined in May 2018. Prior to that he was the President at Enervest, a Houston energy investment firm. Martyn Willsher is the CFO. He was appointed to that role a year ago and was previously the Treasurer at Memorial Production Partners.

The management team of Midstates have left the company and received golden parachutes. CEO David Sambrooks received $2.9 million in cash and equity that was worth $2.4 million when the deal was announced but less than $1 million now. Chief Accounting Officer Richard McCullough received $0.7 million in cash and equity now worth $0.2 million.

The list of Houston-area companies can be found here

 

CFO reappointed as reverse takeover is completed

Stabilis Energy has completed its reverse takeover of American Electric Technologies (AETI) that was originally announced in January 2019. Andy Puhala, the CFO of Stabilis, becomes the CFO of the combined group. He was formerly the CFO of AETI between January 2013 and September 2015.



AETI, a provider of power delivery systems to the Energy sector, is based in Bellaire. It sold off its main US business in August 2018, leaving it with just an operation in Brazil and a joint venture in China. Stabilis has acquired the business for $10.2 million

Stabilis Energy is a small-scale producer and distributor of Liquefied Natural Gas (LNG). Small scale facilities typically produce 50,000 to 500,000 gallons a day. The product is usually used within 500 miles of the production facility in locations not near a natural gas pipeline. Stabilis has one facility located between San Antonio and Corpus Christi that produces 120,000 gallons a day.

The company has its head office in west Houston. For the year ended December 2018, the proforma business had revenues of $45 million.

Stabilis is owned by Casey Crenshaw, who has also been a director and shareholder of AETI since 2012. The share exchange agreement will leave the former owners of Stabilis owning 89% of the combined company. Existing AETI shareholders will own the remaining 11%.

Immediately after the transaction was completed, the company received a delisting notice from Nasdaq because it neither has a minimum of 1 million publicly-held shares nor a minimum market value of $15 million for the publicly-held shares. That’s due to Casey Crenshaw owning 88% of the combined company. The company plans a hearing with Nasdaq

The company will now be known as Stabilis Energy Inc and will trade under the ticker symbol ‘SLNG’.

Carrizo management set for large payout in takeover

Callon Petroleum has agreed to buy Carrizo Oil and Gas in a $3.2 billion all-stock deal.

Callon (market cap $1.46 billion) has its head office in west Houston. It has oil and gas properties in the Permian Basin. Carrizo (market cap $971 million) has its head office in downtown Houston and mainly has operations in the Eagle Ford Basin.



Following the close of the transaction, Callon shareholders will own approximately 54% of the combined company, Carrizo shareholders 46%. Post-close, the company will be run by the Callon management team.

Management team payouts

The four members of the Carrizo management team are in line for large payments. According to the recent proxy statement they will get over $21 million as part of any change of control. CEO Chip Johnson will get $7.8 million, COO Brad Fisher and CFO David Pitts $5.2 million each, while General Counsel and VP of Business Development Gerald Morton will get $3.1 million.

The proxy statement also notes that, in February 2019, the Compensation Committee of Carrizo adopted a new Change in Control Severance plan. This changed some of the terms of the plan. While this didn’t significantly affect the payments due to the CEO, it did increase the severance due to the other three executives by about $700,000 each.

Cutting costs to reduce debt burden

Callon expects to generate annual operational synergies of $65 to $80 million and general and administrative savings of $35 to $45 million. The G&A savings amounts to two thirds of Carrizo’s overheads.

Both companies have a lot of debt. Callon has $1.4 billion of debt, and a debt to EBITDA multiple of 2.4x. Carrizo has $1.8 billion of debt, and a similar debt to EBITDA multiple. Neither company is generating positive free cash.

Dismal shareholder returns

Carrizo is selling for $13.12 a share. However, just last August, the company priced a public offering of 9.5 million common stock at $23 per share. In June 2014, the company had a share price of $69 and a market cap of over $3 billion.

According to Bloomberg, over the past five years, Carrizo shareholder returns have been negative 84% (compared to the sector average of negative 64%). Callon’s return has been negative 41%. Meanwhile the S&P 500 has returned a positive 69% in the same time period.

The transaction is expected to close in the fourth quarter. If the deal doesn’t close, termination fees may be payable (Callon to Carrizo $57 million, Carrizo to Callon $47 million).

https://www.prnewswire.com/news-releases/callon-to-acquire-carrizo-in-all-stock-transaction-300884540.html

 

 

Short-lived Houston public company agrees to takeover

NRC Group Holdings, a waste management company, has agreed to be acquired by US Ecology, an Idaho company, in an all-stock deal with an enterprise value of $966 million.

NRC has its head office in west Houston. It went public in October 2018 as part of a reverse takeover of a Hennessy Capital, a blank check company. NRC itself was established in June 2018 through a combination of two businesses, JFL-NRC Holdings (based in New York) and Sprint Energy Services (based in Houston). Both the companies were affiliates of PE firm, JF Lehman & Co.



NRC provides waste management services for industrial companies. It also provides spill containment and site remediation services as well as operating landfills in the Permian Basin for E&P operators. NRC had proforma 2018 revenues of $389 million and adjusted EBITDA of $91 million.

US Ecology, based in Boise, Idaho, also provides waste management services to industrial companies. The deal allows it to enter the oil and gas end market.

After the acquisition, the shareholders of US Ecology will own 70% of the combined company. It will keep the US Ecology name and will continue to be based in Boise.

The current chairman of NRC is Jim Baumgardner. He worked at US Ecology between 1999 and 2012, serving as CFO, COO & CEO during his time there.

The transaction is expected to close in the fourth quarter.

https://www.globenewswire.com/news-release/2019/06/24/1872828/0/en/US-Ecology-and-NRC-Group-Agree-to-Merge-Expanding-Leadership-in-Specialty-and-Industrial-Waste-Services.html