Crestwood (CMLP) and Inergy (NRGY) to Merge in $7B Deal

May 6, 2013 7:04 AM EDT Send to a Friend
Crestwood Midstream Partners LP (NYSE: CMLP) and Crestwood Holdings LLC and Inergy, L.P. (NYSE: NRGY) and Inergy Midstream, L.P. (NYSE: NRGM) announced the signing of definitive agreements to create a fully integrated midstream partnership with a total enterprise value of approximately $7 billion.

The combination of Crestwood and Inergy creates a diverse platform of midstream assets providing broad-ranging services in the premier shale plays in North America including the Marcellus Shale, Bakken Shale, Eagle Ford Shale, Permian Basin, Powder River Basin Niobrara Shale, Utica Shale, Barnett Shale, Fayetteville Shale, Granite Wash, Haynesville Shale and Monterey Shale. The complementary services offered by Crestwood and Inergy create attractive operational and financial synergies. In addition, enhanced scale and diversification provide further financial flexibility to position the combined partnership to be a formidable competitor for major greenfield development and acquisition opportunities across the midstream value chain. Further, the combination of a significant portfolio of long-term, fee-based contracts with high-quality customers, coupled with a sizable backlog of organic capital opportunities across multiple geographies, provides meaningful visibility to long-term growth.

Under the terms of the definitive transaction agreements, which have been approved by the boards of directors and independent committees of Crestwood and Inergy, the combination will be implemented through a series of transactions, which will result in Crestwood Holdings acquiring the general partner, and thus control, of Inergy L.P. Crestwood’s Chairman, President and Chief Executive Officer, Robert G. Phillips, will lead Inergy L.P. following completion of the transactions, and will serve as Chairman, President and Chief Executive Officer of the combined company. Until all of the transactions have closed, Crestwood Midstream and Inergy Midstream will continue to operate as separate, independent companies.

The terms of the agreements are as follows: Crestwood Holdings will acquire the general partner of Inergy L.P. and will contribute the general partner and incentive distribution rights of Crestwood Midstream to Inergy L.P. in exchange for Inergy L.P. common units. Separately, Crestwood Midstream will be merged with a subsidiary of Inergy Midstream. In the merger, Crestwood Midstream unitholders will receive 1.070 common units of Inergy Midstream for each unit of Crestwood Midstream they own, representing a 5% premium to the 20-day volume weighted average price (“VWAP”) of Crestwood Midstream’s common units. Additionally, all Crestwood Midstream public unitholders other than Crestwood Holdings will receive a one-time cash payment at closing of the merger of approximately $35 million in the aggregate, or $1.03 per unit, $25 million of which will be payable by Inergy Midstream and approximately $10 million of which will be payable by Crestwood Holdings. Inergy Midstream and Inergy L.P. will continue to be listed on the NYSE under the ticker symbols NRGM and NRGY, respectively.

Transaction Details

The combination of Inergy and Crestwood will be effected through a series of transactions. In the first transaction, which is expected to close in mid-June, Crestwood Holdings will acquire the general partner of Inergy L.P. for $80 million in cash. Prior to the closing of this transaction, Inergy L.P. will distribute to its unitholders all of the 56.4 million common units that it owns in Inergy Midstream. The closing of Crestwood Holdings’ acquisition of the general partner of Inergy L.P. is conditioned upon Inergy L.P.’s special distribution of its Inergy Midstream common units to Inergy L.P. unitholders. Upon closing of this transaction, Crestwood Holdings will own the general partner, and thus control, of Inergy L.P.

In the second transaction, which is cross-conditioned with the transaction above and is expected to close simultaneous with the transaction above, Crestwood Holdings will contribute to Inergy L.P. 100% 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 L.P. Crestwood Holdings has also entered into an agreement that provides that, subject to the closing of the second transaction, Crestwood Holdings will have the option to contribute to Inergy L.P. 7.1 million of the Inergy Midstream common units it receives in the merger described below (or in the event the merger agreement is terminated, 6.7 million Crestwood Midstream Units) in exchange for 14.3 million common units of Inergy L.P., which if exercised would result in it owning approximately 29% of the total common units of Inergy L.P. outstanding.

In the final transaction, which is expected to close in the third calendar quarter of 2013, Crestwood Midstream will be merged into a subsidiary of Inergy Midstream. In the merger, Crestwood Midstream unitholders will receive 1.070 units of Inergy Midstream for each unit of Crestwood Midstream they own, representing a 5% premium to the 20-day VWAP of Crestwood Midstream’s units. Additionally, all Crestwood Midstream public unitholders other than Crestwood Holdings will receive a one-time cash payment at closing of approximately $35 million in the aggregate, or $1.03 per unit, $25 million of which will be payable by Inergy Midstream and approximately $10 million of which will be payable by Crestwood Holdings. The total consideration received by the Crestwood Midstream public unitholders other than Crestwood Holdings represents a 14% premium relative to Crestwood Midstream’s closing price on Friday, May 3, 2013. The merger is conditioned on the approval of the holders of a majority of the limited partner interests of Crestwood Midstream. Crestwood Holdings has agreed to vote its limited partner interests in favor of the transaction. The merger is also conditioned on the closing of the first and second transactions described above, but the first and second transactions are not conditioned on the closing of the merger.

Upon closing of the merger, and assuming the election by Crestwood Holdings of its right to contribute Inergy Midstream units to Inergy L.P., ownership of Inergy Midstream L.P. is expected to be as follows:

Current Crestwood Midstream public unitholders other than Crestwood Holdings will own approximately 24.4%;
Crestwood Holdings and its affiliates will own approximately 13.7%;
Current Inergy Midstream public unitholders will own approximately 19.4%;
Current Inergy L.P. public unitholders will own approximately 29.9%;
Inergy L.P. will own approximately 4.7%; and
Current management of Inergy will own approximately 7.9%.
Upon closing of the merger, and assuming the election by Crestwood Holdings of its right to contribute Inergy Midstream units to Inergy L.P., ownership of Inergy L.P. is expected to be as follows:

Current Inergy L.P. public unitholders will own approximately 56.4%;
Crestwood Holdings and its affiliates will own approximately 29.0%; and
Current management of Inergy will own approximately 14.6%.
Together, Crestwood Holdings, Crestwood management and Inergy management teams are expected to hold units of the combined company valued in excess of $1.5 billion, highlighting the management team’s close alignment of interests with fellow unitholders.


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