BPL-BGH to Merge, Law Firms Probe – Analyst Blog

Two master limited partnerships (MLPs) − Buckeye Partners L.P. (BPL) and Buckeye GP Holdings L.P. (BGH) − announced plans to merge for a 100% equity consideration. The merger, which is expected to be held in the fourth quarter of 2010, is subject to approval of the outstanding limited partnership units of both the MLPs.

 

Affiliates of ArcLight Capital Partners LLC and Kelso & Co., which control approximately 62% of Buckeye GP Holdings’ limited partnership units, have agreed to vote for the merger.

 

Under the terms of the agreement, for every unit of Buckeye GP, holders will receive 0.705 Buckeye Partners units on closing. Buckeye GP currently has 27.7 million shares outstanding.

 

The merger is expected to help Buckeye Partners reduce its cost of capital, enabling it to accelerate growth in distributable cash flows through future capital investments. Once completed, the transaction is expected to attract a larger investor base to a single, larger entity.

 

The deal will also result in the cancellation of Buckeye GP’s incentive distribution rights, thus, increasing distribution in the future as the benefits of the merger are realized.

 

Buckeye Partners expects to issue about 20 million additional units under the transaction. Management expects these additional units to dilute the MLP’s distributable cash flow per unit of roughly 6% to 7% in 2011, but expects long-term accretion from the merger.

 

Following the merger, the independent directors of Buckeye GP Holdings’ general partner will join the board of Buckeye Partners’ general partner.

 

Two law firms, Kendall Law Group and Robbins Umeda LLP, have commenced investigation for Buckeye GP’s unitholders in connection with the proposed acquisition. The firms’ investigation seeks to determine whether Buckeye GP’s general partner and its directors had acted in the partnership’s best interests. The investigation seeks to determine whether the transaction is undervaluing the company.