NEW YORK ( TheStreet) -- Houston energy midstream services provider Regency Energy Partners ( RGP)said Thursday it agreed to buy PVR Partners ( PVR)of Radnor, Pa., for $5.6 billion, expanding it from the Permian Basin, South Texas and northern Louisiana into Appalachia's Marcellus and Utica shale plays and the Mid-Continent. The deal includes $1.8 billion in debt assumption.
PVR was surging on the news, gaining 12% to $25.65, while Regency was losing 8% to $25.61.
Holders of PVR common units, Class B units and special units will receive 1.020 common units of Regency for each PVR unit they hold and a one-time cash payment at closing estimated at $40 million. Together, the stocks and cash were valued at $28.68 per unit, a 25.7% premium over PVR's closing price Wednesday of $22.81.
Both partnerships' boards have approved the deal. The transaction is expected to close in the first quarter of 2014 if it clears PVR unitholders and Hart-Scott-Rodino.
CreditSights Inc. analysts Andy DeVries and Charles Johnston wrote in a report Thursday that Regency is paying a full multiple for PVR at 19.5 times Ebitda for the last 12 months, 17 times this year's estimated Ebitda and 14 times next year's Ebitda, versus the bidding war for Southern Union Co. that went over 10 times Ebitda ("and everybody thought that was expensive," they wrote). "While the 14 times is high relative to historic norms, that is being driven by the Fed and investors chasing yield in MLP's," they said, noting that 14 times is in line with current merged GP/LP MLP valuations like MarkWest Energy Partners LP (13.9 times) and Enterprise Products Partners LP (14.2 times).