I have a large position in DVN and am curious why you think that they left money on the table. It appears from the WSJ that their original proposal wasn't well received. Excerpts below.
Earlier this year, Devon proposed dropping many of its midstream assets into an MLP structure, but that idea was not well received by the market. This combination with Dallas-based Crosstex, which operates 3,500 miles of pipelines at the Gulf Coast and in the Ohio River Valley as well as gas processing facilities and rail and barge terminals for oil, gives Devon reach across productive U.S. oil fields.
The combined Devon and Crosstex entity would operate 7,300 miles of pipelines and storage assets across the Barnett Shale in North Texas, the Cana and Arkoma Woodford shales in Oklahoma and along the Gulf Coast.
Devon first looked into spinning off its pipeline and processing assets in 2007 before revisiting the idea earlier this year. In June, Devon said it planned to create its own MLP, but Chief Executive John Richels said Monday that the combined company will be a better deal for shareholders.
"It's an epic deal," said RW Baird analyst Ethan Bellamy. "Devon is getting out of the gates on their midstream standalone business much bigger and stronger and potentially at investment-grade status right away," he said, adding the combination is also "fantastic" for Crosstex.
Bigger is often better for master limited partnerships, which find themselves in an increasingly competitive field when they bid for new assets they need to keep cash distributions growing. That has fueled a wave of consolidation in the industry. Earlier this month Crestwood Midstream Partners completed a merger with Inergy Midstream Partners, and then bought a privately held midstream company in a $750 million deal.
The Devon-Crosstex combination will be larger and more formidable than Devon's midstream assets would be in their own company. Devon said it expects the new business to bring $700 million in adjusted pretax earnings in 2014, compared to the $425 million it had expected a standalone MLP to generate.
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