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UPDATE: Energy Transfer to acquire SemGroup in $5B deal

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UPDATE: Energy Transfer to acquire SemGroup in $5B deal

In a push to build up its oil exports footprint, Energy Transfer LP agreed to acquire fellow midstream energy company SemGroup Corp. in a cash-and-stock deal worth about $5 billion, including the assumption of debt.

The merger consideration includes $6.80 in cash and 0.7275 of an Energy Transfer common unit for each outstanding share of Class A common stock of SemGroup, which is about 40% cash and 60% equity, according to a Sept. 16 news release. The deal is valued at $17 per share, based on the closing price of Energy Transfer units on Sept. 13, and represents a 65% premium to SemGroup's share closing price on the same date.

The deal gives Energy Transfer control of SemGroup's Houston Fuel Oil Terminal, or HFOTCO, on the Houston Ship Channel. The terminal has 18.2 million barrels of crude oil storage capacity and is underpinned by take-or-pay contracts. Energy Transfer plans to build a new crude oil pipeline called the Ted Collins pipeline connecting the terminal to its Nederland, Texas, terminal.

The approximately 75-mile Ted Collins pipeline would also provide access to markets in Houston; Beaumont/Port Arthur and St. James, as well as access to over one million bbl/d of existing crude export capacity, expandable to over two million bbl/d, at the Nederland and HFOTCO terminals. The pipeline's initial capacity would be over 500,000 bbl/d, and commercial operations are scheduled for 2021.

The merger would also boost Energy Transfer's crude and NGL transportation business in the Rockies and Mid-Continent production areas. SemGroup owns crude gathering assets in the DJ Basin in Colorado and the Anadarko Basin in Oklahoma and Kansas, along with crude and NGL pipelines between the DJ Basin and the Anadarko Basin, with crude terminals in Cushing, Okla. Energy Transfer said those assets complement its own crude and NGL transportation assets in the Permian Basin.

SemGroup's other assets include the Maurepas pipeline system, which is composed of three pipelines serving refineries in the Gulf Coast region of Louisiana, with connections to the St. James refining complex in Louisiana. In addition, Energy Transfer would gain a crude gathering and transportation presence in the Alberta Basin in western Canada.

Upon closing, SemGroup's stockholders would hold about 2.2% of Energy Transfer's outstanding units. The combination is expected to generate over $170 million of annual run-rate synergies.

"The combined entity's size, scale and financial profile will ensure that SemGroup's assets, including our Gulf Coast terminal, Mid-Continent footprint and our Canadian joint venture SemCAMS Midstream ULC, benefit from significant growth well into the future," SemGroup President, CEO and director Carlin Conner said, adding that the company has been undergoing a strategic review of alternatives to boost shareholder value.

The merger is scheduled to close late 2019 or early 2020, subject to stockholder approval at SemGroup and regulatory approvals. Energy Transfer and SemGroup's boards have unanimously approved the deal.

Bank of America Merrill Lynch acted as exclusive financial adviser and Latham & Watkins LLP served as legal counsel to Energy Transfer. Jefferies LLC was the financial adviser and Kirkland & Ellis LLP acted as legal counsel to SemGroup.