Energy Transfer Partners of Dallas to merge in $21 billion deal

Kelcy Warren, the Dallas billionaire pipeline investor who founded Energy Transfer Equity, is working to consolidate his empire.

Sunoco Logistics Partners is buying Energy Transfer Partners, combining two firms involved in building the controversial Dakota Access oil pipeline, in a transaction that values the target at $21.3 billion. Energy Transfer holders will receive 1.5 common units of Sunoco for each unit they own, equal to a 10 percent premium to its average price in the past 30 trading days, according to a statement Monday.

The move simplifies the pipeline partnerships controlled by Warren after his proposed $33 billion takeover of Williams Cos. fell apart earlier this year. In its aftermath, some investors had wondered if Warren would look to streamline the corporate structure to make it easier down the road to raise capital for transactions at a time when oil was lower.

“It would put his two biggest MLPs under one roof,” Michael Kay, an analyst for Bloomberg Intelligence, said by phone Monday, referring to the master-limited partnerships. “It’s a little out of left field because of who is buying who. One is a lot bigger than the other.”

Warren will continue to be chief executive officer of the new entity.

The consolidation borrows a leaf out of fellow billionaire Richard Kinder’s book after Kinder Morgan announced a plan two years ago to consolidate its operations in a series of transactions valued at about $44 billion.

“Kelcy’s thoughts are that there is more consolidation to come in the sector,” said Rob Thummel, who helps manage $15 billion at Tortoise Capital Advisors, including units of the Energy Transfer partnerships. “He has to position himself with the lowest cost of capital if he’s going to be able to compete.”

Energy Transfer Partners owns and operates more than 62,500 miles of natural gas and liquids pipelines. The Dakota Access pipeline has been plagued by protests from Native American tribes and environmentalists.

Energy Transfer Partners plunged as much as 11 percent and was trading 6.9 percent lower at $36.66 at 12:05 p.m. in New York. Sunoco Logistics fell as much as 11 percent and was last at $24.07. Energy Transfer Equity gained 3.3 percent.

Monday’s deal paves the way for savings in excess of $200 million annually by 2019, the statement showed. The combined partnership is expected to be the second-largest MLP as measured by enterprise value. The transaction was approved by the boards of both partnerships and is expected to close in the first quarter.

This story was originally published November 21, 2016 at 2:58 PM with the headline "Energy Transfer Partners of Dallas to merge in $21 billion deal."