NEW YORK (The Deal) -- Spectra Energy Partners LP (SEP) of Houston said Tuesday, Aug. 6, it agreed to buy U.S. natural gas transmission, storage and liquids assets from affiliate Spectra Energy Corp. (SE), also of Houston, for $12.3 billion, making Spectra Energy Partners one of the country's top pipeline and storage master limited partnerships.
The price includes $2.2 billion in cash and 172 million in newly issued limited partner units and 3.5 million in newly issued general partner units worth $7.6 billion based on Spectra Energy Partners' unit price yesterday. Spectra Energy Partners also will assume about $2.5 billion of acquired asset debt.
Spectra Energy Partners said the transaction's 2014 Ebitda multiple is 9.3 times based on the volume weighted average unit price of $36.12 for the 10 days ending June 11, when Spectra Energy announced its plans for the drop-down. The entities expect to close the deal by year's end.
Analysts at Tudor Pickering Holt & Co. Securities Inc. said the deal is at a higher multiple than Spectra Energy first indicated and based on Spectra's current stock price, it works out to 10.4 times. "Robust U.S. transmission growth backlog provides growth visibility for SEP [Spectra Energy Partners], but we think SEP likely expected more up-front accretion from today's announcement," they said.TPH added that despite the bigger up-front price, less accretion at Spectra Energy Partners cuts the value of Spectra Energy's general partner interest, which is Spectra Energy's highest-value asset. The move is similar to Williams Cos.' (WMB) sale of $9.75 billion in assets to pipeline master limited partnership Williams Partners LP (WPZ) in 2010. On a conference call with analysts and investors, management wouldn't specify how Spectra Energy Partners will fund the deal, although they said it would be with debt and not equity. Spectra Energy plans to use the proceeds to pay down debt. Spectra Energy CEO and president Greg Ebel said on the call the company wasn't considering selling or spinning off its natural gas storage, transmission and distribution business Union Gas in Ontario, like Oneok announced it would do with its natural distribution unit ONE Gas on July 25. "We've looked at it, but their utility is a user of capital and our utility is a provider of capital for dividends. That's a big difference," he said. "Never say never, but right now, the tax inefficiency, the size of the project and the size of the dividend paid out of Canadian assets are important to consider at this point."
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