Houston energy infrastructure provider Plains All American Pipeline (PAA) - Get Plains All American Pipeline, L.P. Report said after the markets closed Monday that it's cutting its dividend by 21% and entered into a transaction with Plains GP Holdings (PAGP) - Get Plains GP Holdings LP Class A Report that will simplify its structure.

Specifically, PAA is buying a 2% general partner interest in PAGP as well as incentive distribution rights from Plains AAP for $7.2 billion in stock and debt. AAP will get 245.5 million newly issued PAA units and PAA will assume $593 million in AAP debt.

PAA's dividend will be 55 cents per unit starting in the third quarter, or $2.20 on an annualized basis. PAGP also cut the dividend on its Class A units by 11% to 20.65 cents per share, or 82.60 cents on an annualized basis.

PAA chairman and CEO Greg Armstrong said in a statement that the transaction and related actions will better align stockholders' interests, cut the entity's cost of capital and improve its credit profile and distribution coverage. "As a result, PAA will be better positioned to capitalize on attractive growth opportunities and manage its business over the long term," he said.

Brian Gamble, an analyst at Piper Jaffray unit Simmons & Co. International, said the transaction appears to improve coverage metrics at PAA. He said the distribution cut came in at the low-end of his expectations of 20% to 50% for PAA, but those expectations assumed a combined general partner/limited partner entity and didn't account for the 11% cut at PAGP. He has a neutral rating on the stock with a price target of $27 per unit.

PAA's stock was up almost 6.5% in morning trading to $28.56 per unit after closing down 1.9% on Monday at $26.80.

The dividend cut and simplification transaction were expected, as PAA has faced difficulties along with other infrastructure providers in the oil and gas industry. In January it sold $1.5 billion worth of equity capital to private equity firms including EnCap Investments, EnCap Flatrock Midstream, Energy & Minerals Group, Kayne Anderson Capital Advisors and First Reserve to keep its projects going at a difficult time in the public markets. It's also been selling assets, including $250 million worth in April.

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The purchase is set to close in the fourth quarter if it clears PAGP's shareholders. It's not expected to be taxable to any of the parties.

PAA will end up with 643 million common units outstanding, 706 million assuming conversion of PAA's Series A Preferred units. AAP will execute a reverse split to adjust the number of its outstanding units to equal the number of PAA common units held by AAP. PAGP will also execute a reverse split to adjust the number of PAGP Class A shares outstanding to equal the number of AAP units it owns following AAP's reverse split.

Holders of AAP Class A units other than PAGP will continue to have the right to exchange their AAP ownership and related voting rights for a PAGP Class A share on a one-for-one basis or redeem their ownership and related rights for their proportionate share of PAA common units held by AAP.

PAA owns and operates energy infrastructure and provides logistics services for crude oil, natural gas liquids, natural gas and refined products. It also owns a network of pipeline transportation, terminaling, storage and gathering assets in crude oil and natural gas liquids producing basins and transportation corridors and at market hubs in the U.S. and Canada. Its transportation unit handles 4.6 million barrels per day of crude oil and natural gas liquids.

Barclays' Lee Jacobe and Nelson Mabry and Citigroup's Michael Jamieson and Claudio Sauer advised the PAA entities and management. Tudor, Pickering, Holt & Co.'s Lance Gilliland, Aaron Blomquist and Matt Rollins assisted PAA's conflicts committee and Jefferies LLC's Peter Bowden, Ajay Khurana, John Huwiler, Brian Conner, Diggs Gully, Brian Bravo, John Antel and Seth Kidd worked with PAGP's board.

Assisting PAGP were Vinson & Elkins LLP's David Oelman, Alan Beck, Ramey Layne, Lande Spottswood, Austin March, Matthew Falcone, Chris Mathiesen, Ryan Martin, John Lynch, Price Manford and Laura Gieseke. Richards, Layton & Finger PA's Srini Raju, Greg Ladner and Ken Jackman represented PAA's conflicts committee and Baker Botts LLP's Joshua Davidson, Jason Rocha and Michael Bresson were special counsel for PAGP's board.

Jefferies said the deal is the second largest energy M&A transaction announced so far this year and that other master limited partnerships will take notice of PAA's improved competitive position as a result of the move.