HOUSTON — Midstream master limited partnership Targa Resources will acquire Atlas Pipeline and Atlas Energy for $5.9 billion, Targa said Monday, in a deal that will bring the Houston-based company into several of the hottest shale plays across the country.
Through the deal, Targa will add to its Permian Basin holdings as well as gain entry into the Mississippi Lime, Eagle Ford and Oklahoma’s SCOOP plays, where production has been booming thanks to hydraulic fracturing. The new assets will also add to Targa’s natural gas liquid processing and transportation facilities anchored by a Gulf Coast export terminal.
In a conference call with investors, Targa CEO Joe Bob Perkins said that the deal would give the company a presence in four of the top five basins by active rig count and the top three basins by oil production. Targa already has a presence in the North Dakota Bakken region.
The transaction is somewhat of a reversal for Targa, which many thought could be purchased itself as recently as this summer. In June, Targa put out a statement saying that the company had been in “high-level preliminary discussions” about a deal with Energy Transfer Equity L.P., but that those talks had been ended.
“They were previously viewed to be the hunted, and now they’re the hunter,” said Becca Followill, head of research and midstream analyst at U.S. Capital Advisors. The reversal may be one of the factors weighing on the stock price, she added, as investors remove an acquisition premium from the price. Followill called the deal a long-term benefit for Targa.
Shares of Targa Resources fell by nearly 7 percent to $59.56 in late trading Monday. Targa Resources Corp. fell by about 10 percent to $108.99. Atlas Energy gained nearly 15 percent to $37.25 and Atlas Pipeline rose slightly by about 1 percent to $34.07.
Under the terms of the deal, Houston-based Targa Resource Partners LP and Targa Resources Corp. will acquire Tulsa, Oklahoma’s Atlas Pipeline Partners L.P. and Atlas Energy L.P., according to the announcement. Atlas Energy will also spin off its non-midstream assets prior to the deal.
The largest chunk of the deal will be Targa Resources Partners’ acquisition of Atlas Pipeline Partners for $4 billion. Targa will also assume about $1.8 billion in debt.
Each Atlas Pipeline common unitholder – similar to a shareholder – will be entitled to receive 0.5846 units of Targa Resource Partners and a cash payment of $1.26 per unit. The exchange ratio is a 15 percent premium for unitholders, according to Targa’s announcement.
Targa will also redeem Atlas Class E preferred units for $126.5 million in cash.
In the second part of the deal, Targa will purchase Atlas Energy L.P. for a total of $1.869 billion, including 10.35 million Targa Resources shares valued at $1.2 billion and $610 million in cash.
“The acquisitions will significantly and immediately increase our scale and geographic diversity, accelerating the growth of our premier North American midstream platform. APL’s footprint solidifies the Partnership’s position as a leader in the Permian Basin, while adding top-tier assets in the Midcontinent and South Texas regions,” Perkins said in a statement. “Importantly, the combination of APL’s NGL production with Targa Resources Partners’ leading NGL downstream assets will allow the pro forma partnership to generate additional revenue along the NGL value chain.”
Targa Resource Partners L.P. said it expects an 11 percent to 13 percent distribution growth in 2015, while Targa Resources Corp. said it expects 35 percent dividend growth in 2015.