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Unsolicited bids for NuStar not 'hostile,' Energy Transfer's Warren says

Energy Transfer Equity LP chief Kelcy Warren said the pipeline giant's unsolicited bids to acquire NuStar Energy LP's general partner, which were rejected, were made in good faith and should not be interpreted as hostile attempts to revamp the company's management.

"We think the assets fit us extremely well, and we think more money could be made from those assets," Warren said during the Energy Transfer family's May 10 first-quarter earnings conference call. "We made it very clear to management of NuStar that we would not do anything hostile. ... I respect their right to their opinion."

Energy Transfer Equity, or ETE, twice offered to purchase NuStar GP Holdings LLC for $14.70 per unit in cash, ETE units or a combination. NuStar Chairman William Greehey, who owns 21% of the holding company's common stock, refused to withdraw his support from NuStar's pending simplification deal to instead support ETE's first buyout proposal. ETE in its second bid said it was ready to pursue the deal without Greehey's support, prompting one equity analyst to note that ETE's "aggressive" tactics were unusual given the absence of hostile takeovers in the midstream sector. NuStar GP's stock closed May 9 at $12.35.

ETE's approach, however, still reflected the fact that NuStar's crude oil and natural gas liquids export terminal in Corpus Christi, Texas, could provide an untapped revenue stream for volumes from Energy Transfer Partners LP's NGL pipelines in the Gulf Coast region.

NuStar executives during their own first-quarter earnings conference call on April 26 — after the first bid but before the second — declined to comment on the partnership's interactions with ETE.

Corporate simplification

Warren on May 10 also clarified the thought process behind ETE's anticipated 2019 merger with Energy Transfer Partners, or ETP, saying he is leaning toward a simplified master limited partnership rather than a C corporation. "We do not want to do something that is irreversible and ... that we would regret," he said. "We are not absolutely punting on a C-corp structure. We are just saying ... if we had to pull the trigger today, it would be a more simple structure of [ETE buying ETP]."

Analysts and investors in recent months have urged ETE to eliminate ETP's required cash payments to its general partner, which ETE owns, and either a combined MLP or a C corporation conversion would include canceling those incentive distribution rights agreements that drain ETP's pool of available capital for reinvesting in the business.

Warren added that Sunoco Logistics Partners LP, which merged with ETP in 2017, would not likely be rolled up into ETE in the "foreseeable future."

China and trade

COO Marshall McCrea provided an update on the Chinese government's approval process for ETP's recently formed joint venture with the petrochemical wholesaler Satellite Petrochemical USA Corp., which would build a new hydrocarbons export terminal on the Gulf Coast to deliver supplies to Satellite's ethane crackers in China.

"When we went to China and actually signed the deal, we were told that they'd get expedited approval. And then [President Donald Trump] lopped on some tariffs," he said. "It's going to take a little bit longer ... but we believe in the next 60 days they will receive approval."

After the U.S. moved to impose a 25% tariff on steel imports and a 10% tariff on aluminum imports from countries including China and planned additional tariffs on up to $60 billion of Chinese imports to curtail "unfair" trading, Beijing responded by unveiling its own plan to impose tariffs on U.S. imports worth $50 billion. Oil and gas pipeline company executives have shown concerns that a potential trade war could induce prohibitively high steel prices, but exporters are not as worried that they will lose out on market share.

ETP on May 9 posted first-quarter 2018 adjusted EBITDA of $1.88 billion, an increase from $1.45 billion in the prior-year period. The partnership's distributable cash flow in the quarter was $1.22 billion, an increase from $945 million in the year-earlier period.

ETE reported net income of $363 million in the first quarter of 2018, up from the $239 million reported in the year-ago quarter. Adjusted DCF was $395 million, compared to $215 million in the first quarter of 2017.