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The Deal: Regency Energy Makes Two Asset Buys Worth $1.6B

NEW YORK (The Deal) -- Regency Energy Partners (RGP) acquired nearly $1.6 billion worth of Texan assets on Monday, Dec. 23.

In the bigger deal, the Houston-based midstream services provider said it will purchase Eagle Rock Energy Partners' midstream business for about $1.3 billion in stock and cash, including debt.

The move will expand Regency's presence in the Eastern and Southern Texas Panhandle. The assets exchanging hands include about 8,100 miles of pipeline.

"This acquisition represents another attractive growth opportunity for Regency and is very strategic to our plans to increase our scale and expand our basin diversity in liquids-rich areas," said Regency CEO Mike Bradley in a statement.

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Bradley added that the transaction will compliment Regency's pending $5.6 billion acquisition of PVR Partners (PVR), announced in October.

"When combined with the proposed acquisition of PVR Partners, our expanded footprint will strengthen Regency's position as a midstream provider in the Mid-Continent region and provide additional growth opportunities," Bradley added.

Eagle Rock, also based in Houston, said the divestiture is part of its strategy to become a pure play upstream master limited partnership. The company is going to use the sale proceeds to pay down debt.

In a second-quarter earnings call, Eagle Rock CEO Joseph Mills had said the company might consider selling assets in the South Central Oklahoma Oil Province to address its debt, then pegged at $1.16 billion.

Regency is going to fund the acquisition by issuing $200 million of common units to Eagle Rock, another $400 million in common units to Regency's general partner Energy Transfer Equity, and is going to exchange up to $550 million of Eagle Rock's senior notes for Regency senior notes. Regency is also going to draw from its credit facility.

Regency expects to complete the transaction in the second quarter of 2014.

Barclays Capital Inc. and Andrews Kurth LLP advised Regency.

Evercore Group LLC and Citigroup Global Markets Inc. advised Eagle Rock which was represented by Vinson & Elkins LLP.

Separately on Monday, Regency said it is going to acquire Hoover Energy Partners' midstream business for about $290 million. That move will expand Regency's presence in the Delaware Basin in West Texas.

Regency is going to fund the acquisition by issuing $98 million of common units to Hoover and the remainder from its credit facility. The Hoover transaction is expected to close in the first quarter.

Regency shares opened 1.5% higher to $24.53 per share on Monday morning, giving it a market capitalization of $5.1 billion. Eagle Rock Energy was up 12.64% in early morning trading Monday to $5.92 per share, giving it a market capitalization of about $945 million.

-- Written by Demitri Diakantonis

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