Notable Mergers and Acquisitions 9/27: (BSX)/(GI) (MPW) (DTE) (SXL)
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EndoChoice develops and commercializes innovative products and services for specialists treating a wide range of gastrointestinal (GI) conditions. The EndoChoice portfolio includes single-use devices, such as resection and retrieval devices, needles, graspers and infection control kits. The company also has strong positions in pathology services and imaging technologies.
Under the terms of the agreement, Boston Scientific will launch a tender offer for all EndoChoice outstanding shares at a cash price of $8.00 per share. Following the tender offer, if successful, all remaining shares of EndoChoice will receive the same consideration paid to stockholders who participated in the tender offer. The total equity value is approximately $210 million and the transaction is expected to close in the fourth quarter of 2016 subject to customary closing conditions.
"The addition of EndoChoice products and services to our portfolio supports our strategy to provide comprehensive solutions to gastroenterology caregivers and the patients they serve," said Art Butcher, senior vice president and president, Boston Scientific, endoscopy. "We expect the acquisition to expand our leadership into new categories in the endoscopy market, and to drive strong, continued growth of our endoscopy business."
Mark Gilreath, founder and chief executive officer, EndoChoice, said, "The combination of our broad portfolio of products and services for the gastroenterology physician, with the complementary products and large global infrastructure of the Boston Scientific endoscopy business, creates an enhanced growth platform for both businesses, and delivers immediate value for our shareholders."
The acquisition is expected to be breakeven to Boston Scientific adjusted earnings per share in 2017, and accretive thereafter. The transaction is expected to be less accretive (or dilutive, as the case may be) on a GAAP basis, due to amortization expense and transaction and integration costs.
EndoChoice generated approximately $75 million of total sales in the twelve month period ended June 30, 2016. The EndoChoice imaging portfolio includes the Full Spectrum Endoscopy (FUSE®) colonoscope, which enables doctors to better see anatomy and find more lesions during colonoscopies. With respect to the FUSE colonoscope, Boston Scientific intends to evaluate strategic options, and expects to provide further clarity at or around the time of transaction closing.
*** DTE Energy (NYSE: DTE) announced it will purchase midstream natural gas assets in support of the company's strategy to continue to grow and earn competitive returns for shareholders.
The agreement calls for DTE to purchase 100 percent of Appalachia Gathering System (AGS), located in Pennsylvania and West Virginia, and 40 percent of Stonewall Gas Gathering (SGG), in West Virginia, from M3 Midstream. In addition, DTE will purchase 15 percent of SGG from Vega Energy Partners. The combined purchase price for the assets to be acquired by DTE is $1.3 billion. These assets will become part of the DTE's non-utility Gas Storage and Pipeline business which currently owns and manages a network of natural gas gathering, transmission and storage facilities serving the Midwest, Ontario and Northeast markets.
These assets gather natural gas produced in the Appalachia region and provide access to multiple markets, including the Great Lakes region, through interconnections with Columbia Gas Transmission, Texas Eastern Transmission and the NEXUS Gas Transmission project currently being developed by DTE and Spectra Energy. Demand for natural gas in the Great Lakes region is expected to increase significantly, driven by coal to gas conversions for electricity generation and economic growth. The low-cost natural gas supply from the Marcellus/Utica region is expected to serve this growth and displace higher cost alternatives.
"These transactions will significantly increase our midstream presence in the Appalachian basin," said Gerry Anderson, CEO of DTE Energy. "The acquired assets are in a productive area of the Southwest Marcellus/Utica region and have expansion potential. These acquisitions align with DTE's existing strengths in managing natural gas midstream assets."
These transactions, expected to be completed in Q4 2016, will not materially change DTE's current business mix.
"The decision to purchase these assets is consistent with DTE's growth plans," said Jerry Norcia, president and COO, DTE Energy. "These two systems are complementary to our current asset portfolio and will provide synergies over time."
The new natural gas infrastructure will:
- Complement our existing gas midstream business
- Provide a foundation for new value creation with significant growth potential
- Expand our footprint in the most prolific production region in the country spanning the heart of the SW Marcellus/Dry Utica
- Provide solid economics underpinned by long term contracts and high quality reserves
Wells Fargo Securities, LLC has served as the exclusive financial advisor to DTE and Wells Fargo Bank NA has provided committed financing for the transaction.
*** Medical Properties Trust, Inc. (NYSE: MPW) announced that it has signed a definitive agreement to acquire the real estate interests of nine acute care hospitals operated by Steward Health Care System LLC (“Steward”). The $1.25 billion total value of the transactions includes a $1.2 billion investment in hospital real estate and a $50 million equity investment in Steward. Per share accretion of approximately 10% is expected, after consideration of previously disclosed dispositions of approximately $800 million, approximately $300 million of previously disclosed and pending acquisitions of German hospitals and permanent financing of the transactions. Steward is owned by its management team and premier private equity firm, Cerberus Capital Management (“Cerberus”), and is the largest for-profit hospital system in the highly innovative Massachusetts market.
MPT’s interests in the hospitals will be subject to a master lease and mortgage loan arrangements with cross default provisions and backed by a corporate guaranty. The master lease represents approximately $600 million and has a 15-year initial term and three five-year extension terms, and a GAAP yield of 10.1%; the cross-defaulted mortgage loans, with a similar aggregate value, have identical rates, including CPI-based escalations, generally within a two to five percent band. MPT is also investing, alongside Cerberus and management, $50 million in Steward, which in addition to attractive investment characteristics, provides certain protective rights concerning Steward’s credit decisions.
A Cerberus affiliate has agreed to invest $150 million in MPW’s common stock in a private placement transaction concurrent with or soon after closing.
In addition to the premiere portfolio of irreplaceable hospital assets announced today, the agreement also includes a right of first refusal for MPT to acquire future Steward hospitals.
“As a result of our strategic asset sales earlier this year, along with the opportunistic utilization of our ATM program and refinancing of long term debt, MPT has reduced our leverage to among the best in the industry at 5.0 times EBITDA,” said Edward K. Aldag, Jr., MPT’s Chairman, President and Chief Executive Officer. “The successful execution of our strategy has made possible this new relationship with Steward, which represents tremendous opportunity for MPT, as Steward similarly positions itself for rapid growth.
“Since Steward’s inception in 2011, they have achieved outstanding results and now rank as the second largest hospital operator in New England, with the largest community-based network of physicians. Dr. Ralph de la Torre, Steward’s Chairman and CEO, is recognized for his thought leadership in the healthcare industry, demonstrated by Steward’s innovative model in delivering healthcare to over 150 communities across Eastern Massachusetts, Rhode Island and Southern New Hampshire. We are very excited about the opportunities this relationship creates for both of us.”
*** Sunoco Logistics Partners L.P. (NYSE: SXL) and the Vitol Group today announced the Partnership’s strategic acquisition of Vitol’s Permian Basin crude oil system. The Partnership entered into an agreement with Vitol Inc. to purchase an integrated crude oil business in West Texas for approximately $760 million plus working capital (the “Acquisition”). The Acquisition provides the Partnership with an approximately two million barrel crude oil terminal in Midland, Texas, a crude oil gathering and mainline pipeline system in the Midland Basin, including a significant acreage dedication from an investment grade Permian producer, and crude oil inventories related to Vitol’s crude oil purchasing and marketing business in West Texas. The Acquisition includes the purchase of a 50 percent interest in SunVit Pipeline LLC (“SunVit”) which results in the Partnership owning all of the membership interests in SunVit. SunVit connects the Midland terminal to the Partnership’s Permian Express 2 pipeline, a key takeaway to bring Permian crude oil to multiple markets. The Acquisition is expected to close in the fourth quarter 2016, subject to certain closing conditions and regulatory approval.
In connection with the acquisition of Vitol’s integrated crude oil business in West Texas, Energy Transfer Partners, L.P. (NYSE: ETP) and Energy Transfer Equity, L.P. (NYSE: ETE), as the owners of Sunoco Partners, LLC, the Partnership’s general partner, have agreed to reduce the incentive distributions the general partner receives from the Partnership by a total of $60 million over a two-year period. The reduction will be recognized evenly over eight quarters beginning with the quarterly cash distribution paid for the third quarter 2016.
"We are pleased to announce this strategic crude oil acquisition," said Michael J. Hennigan, President and Chief Executive Officer for Sunoco Logistics Partners L.P. "The addition of the Vitol system is an excellent synergistic fit to our growing crude platform in the Permian Basin. The Permian Basin is the most prolific of all of the US shale areas with strong growth expectations. The Vitol pipeline assets are located in what we believe are the three best counties in the Midland Basin. Adding a 2 million barrel terminal in Midland is very complimentary to our Permian strategy.”
On the General Partner’s financial relief, Hennigan said, “We appreciate Energy Transfer’s support on this acquisition. They share our vision of the substantial growth opportunities from production in the Permian basin. Their financial assistance via incentive distribution relief provides us with expected accretive economics for this strategic acquisition. Long-term, with Energy Transfer’s growing crude gathering presence in West Texas combined with our extensive mainline crude platform and gathering assets, we expect growth opportunities for our partnerships in this very competitive region.”
Mike Loya, Head of the Americas for Vitol added, “We have had a good working relationship with Sunoco Logistics, including our SunVit JV. Sunoco Logistics has a strong strategic position in West Texas and we are confident that they will provide excellent service to customers of the Vitol system. We wish Sunoco Logistics well in the further development of the business.”
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