NEW YORK ( TheDeal) -- In a complicated deal, Crestwood Midstream Partners LP of Houston said Monday it plans to merge with Inergy Midstream LP of Kansas City, Mo., to form a mid-sized midstream energy company with an enterprise value of $7 billion.

The combination will have assets in all the major shale sites in North America including the Marcellus, Bakken and Eagle Ford along with the Permian, Powder River Basin Niobrara, Utica, Barnett, Fayetteville, Granite Wash, Haynesville and Monterey locations.

Inergy surged 7.9% to close at $23.75 while Crestwood added 3.6% to end Monday's trading session in New York at $24.70.

The deal is not subject to financing though the companies have a commitment for a revolver/term loan in connection with the transaction with a plan to syndicate and upsize their revolver from $600 million to $1 billion.

The companies said the complementary services they offer create attractive operational and financial synergies and their enhanced scale and diversification will provide further financial flexibility to position the combined partnership to be a "formidable competitor" for major new projects and acquisitions.

The three-step transaction involves a stock payout with Crestwood Midstream unitholders receiving 1.07 units of Inergy Midstream for each unit of Crestwood they own. At Inergy Midstream's closing stock price Friday of $24.55 per share, that part of the deal would be valued at around $1.5 billion, a 5% premium over Crestwood Midstream's 20-day volume weighted average price and 10% over Friday's close. Crestwood Midstream also said unitholders are getting a one-time cash payment totaling $35 million, or $1.03 per unit, $25 million of which Inergy Midstream will pay and $10 million of which Crestwood Holdings will pay. Total consideration to Crestwood Midstream unitholders represents a 14% premium relative to Crestwood Midstream's Friday closing price, Simmons & Co. International wrote in a report Monday.

The deal gives Crestwood Midstream a value of $2.7 billion, a banker with knowledge of the deal said Monday.

Inergy Midstream and Inergy LP will continue to be listed on the New York Stock Exchange under the ticker symbols NRGM and NRGY, respectively.On a conference call with analysts and investors, management said the deal comes with a 3.25% breakup fee. Management said they hope the combination will eventually win investment grade status from the rating agencies. They don't expect any divestitures as a result of the combination, as it doesn't have to clear antitrust regulators.

The deal has been approved by both companies' boards but must be approved by the majority of the limited partner interests of Crestwood Midstream.

The combination will happen through a series of transactions. In the first, which is expected to close in mid-June, Crestwood Holdings will acquire the general partner of Inergy LP for $80 million in cash, but before closing, Inergy LP will distribute to its unitholders all of the 56.4 million common units that it owns in Inergy Midstream.

In the second, which is conditioned upon the first and expected to close at the same time, Crestwood Holdings will contribute to Inergy LP all of its interest in Crestwood Gas Services GP LLC, the general partner of Crestwood Midstream that also owns 100% of the incentive distribution rights of Crestwood Midstream, in exchange for 35.1 million common units and 4.4 million subordinated units of Inergy LP. Crestwood Holdings will have the option to contribute to Inergy LP 7.1 million of the Inergy Midstream common units it receives in the merger of Crestwood Midstream and Inergy Midstream (6.7 million if the merger is terminated) in exchange for 14.3 million common units of Inergy LP, which will lead it to own 29% of Inergy LP's common units outstanding.

In the final transaction, which is expected to close by the end of summer, Crestwood Midstream will be merged into a unit of Inergy Midstream at the 1.07 unit and $35 million cash trade.The merger is conditioned on the closing of the first and second transactions, but the first and second transactions are not conditioned on the closing of the merger.

Inergy Midstream is expected to be 24.4% owned by Crestwood Midstream public unitholders, 13.7% by Crestwood Holdings and its affiliates, 19.4% by Inergy Midstream public unitholders, 29.9% by Inergy LP public unitholders, 4.7% by Inergy LP and 7.9% by management of Inergy.Inergy LP is expected to be 56.4% owned by Inergy LP public unitholders, 29% by Crestwood Holdings and its affiliates and 14.6% by current Inergy management. Crestwood Holdings, Crestwood management and Inergy management teams are expected to hold units of the combined company valued at $1.5 billion.

First Reserve owns 100% of Crestwood Holdings with management and is Crestwood Midstream's largest unitholder with about 43% of its outstanding limited partner interests.

Crestwood chairman Bob Phillips will be chairman, president and CEO of the combined company, which is expected to generate $450 million in Ebitda this year. Inergy chairman and CEO John Sherman and president R. Brooks Sherman Jr. will step down from day-to-day management roles at the new partnership, but both will keep all of their investment in the pro forma partnership and Sherman will continue to serve as a director on the boards of Inergy LP and Inergy Midstream.

"We view this transaction as a merger of equals through which we are creating a larger, more diversified operating platform that will be highly attractive to investors, customers, creditors and employees," Phillips said in a statement. "Crestwood operates a first-class portfolio of shale-focused midstream assets, but our operational capabilities and services to our customers currently end at the tailgate of the processing plant. With this combination, we will truly begin to experience the power of the value chain growth strategy by offering our customers a more comprehensive and competitive suite of services that enables us to capture incremental fee opportunities that expand margins and maximize returns on investment," he said.

Sherman said the combination will be accretive to Inergy LP and Inergy Midstream unitholders. "Crestwood's reputation and strong competitive position in the gathering and processing, or supply side of the business, greatly complements what we do on the demand side of the business," he said. "We believe bringing the two partnerships together through a merger of equals creates a powerful combination that will drive significant value."The combined partnership will be based in Houston with executive offices in Kansas City and Fort Worth.

Citigroup Global Markets Inc.'s Michael Jamieson and Sam Pitts advised Crestwood and Simpson Thacher & Bartlett LLP's Bill Curbow, Chris May, John Pitts and John O'Connell and Akin Gump Strauss Hauer & Feld LLP's John Goodgame, Thomas Weir and Andy Lehman provided legal counsel.Evercore Partners Inc.'s Rob Pacha, Ray Strong, Guillermo Sierra, Eduard Freydel, Will Fitzgerald and Amit Bushan advised the conflicts committee of Crestwood Midstream's board and Morris, Nichols, Arsht & Tunnell LLP's Rick Alexander, Lou Hering and Ryan Greecher provided legal counsel.Greenhill & Co.'s Greg Randolph was lead financial adviser and Jefferies LLC's Peter Bowden, Brian Conner, Brian Bravo and Geremy Fenton were co-financial adviser and sole technical adviser for Inergy LP and Inergy Midstream. Vinson & Elkins LLP's Mike Rosenwasser and Gillian Hobson counseled Inergy LP and Inergy Midstream.

SunTrust Robinson Humphrey Inc.'s Peter Panos and Tom Gerlacher assisted the committee of independent directors of Inergy LP's board and Richards, Layton & Finger PA's Srinivas Raju and Greg Ladner provided legal counsel. Tudor, Pickering, Holt & Co. LLC's Steve Jones, Lance Gilliland and Casey Gorder advised a committee of independent directors of Inergy Midstream's board and Potter Anderson & Corroon LLP's Thomas Mullens gave legal counsel.

Written by Claire Poole in Houston