A pair of hedge fund managers called on Equitrans Midstream Corp. to revise a proposal that would exchange EQM Midstream Partners LP's required cash payments to the company for 95 million units and a noneconomic general partner interest in the partnership.
HITE Hedge Asset Management LLC President and managing partner James Jampel, along with portfolio manager Matt Niblack, wrote a Dec. 12 letter to members of EQM's conflicts committee telling them to reject and renegotiate the deal, which is part of a larger corporate simplification scheduled to close in January 2019.
"This represents a shockingly bad deal for EQM unit holders that both dilutes cash flows for the foreseeable future by [greater than] 15% and values EQM's [incentive distribution rights] at a 30% premium to market precedent," they said. "Fortunately, there is strong precedent from other conflicts committees negotiating reasonable deals for their respective MLPs. This includes committees representing [Enbridge Energy Partners LP, Enbridge Energy Management LLC, Spectra Energy Partners LP, TransMontaigne Partners LP and Cheniere Energy Partners LP Holdings LLC] all of which received a better deal after initial announcement."
An exchange of 72 million EQM units, at most, for the incentive distribution rights and the general partner interest would be fair, they wrote. HITE held 23,400 common shares of EQM as of Sept. 30, representing just 0.02% of all outstanding common units, according to S&P Global Market Intelligence data.
Several midstream master limited partnerships ditched their incentive distribution rights obligations in 2018 as funneling cash to general partners took a toll on liquidity and handicapped reinvestment in the energy pipeline sector. "The structure has become offensive to investors. … People want it gone," Credit Suisse analyst and director Spiro Dounis said in a recent interview.