Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (52591)	10/23/2013 12:01:52 PM
From: gcrispin	Read Replies (1) \| Respond to of 78530

In my opinion, the synergies outweigh what I think of Crosstex. The two companies, from what I have read, have been business partners for a long time. “This deal is like marrying your high school sweetheart,” Ethan Bellamy, a Denver-based analyst for R.W. Baird & Co., wrote in an e-mail. “Crosstex provided excellent customer serviceto Devon for its midstream needs for years, and that proved to be the foundation of this merger.” Clearly, Devon is taking over Crosstex. From the webcast: Devon will initially have a 70% interest in the General Partner with the remaining 30% owned by current Crosstex Energy, Inc. public shareholders. The General Partner will also own 50% of “Devon Holdings”, which will be available for future drop-downs to the MLP. In addition, the General Partner will own approximately 7% of the outstanding units in the new MLP, and 100% of the incentive distribution rights. In addition to its 70% interest in the General Partner, Devon will have a majority interest of 53% in the new Master Limited Partnership. Existing Crosstex unitholders will have 40% ownership, and as I touched on earlier, the new General Partner will own the remaining 7% of the outstanding units. Through the formation of this new business, Devon obtains a 70% interest in a publicly traded general partner that is achieving the highest tier of incentive distribution rights. As I mentioned earlier, reaching the “high splits” is very valuable for owners of the general partner as it disproportionally increases its share of distributable cash flow from the New Company. Compared to our previous standalone plan, this accelerates the value of reaching the high-splits by at least three years. The higher cash flow stream resulting from reaching the “high splits” and the improved overall - 9 - growth outlook for the New Company should result in higher equity valuation for the General Partner over time. The high splits that Devon is suggesting indicates that the combined assets will pay off earlier than in their stand-alone model. Could they have dictated such terms and control over the new company if they merged with another partner? It is simply a guess to say that there should be a better partner out there.