Roughly three years after blowing up a $33 billion deal to buy pipeline peer Williams Cos. Inc., billionaire master limited partnership builder and Energy Transfer LP CEO Kelcy Warren has landed another deal.
The deal carries a 65% premium to buy midstream crude oil operator SemGroup Corp. in a market looking for mergers-of-equals with no premiums, and the proposal contrasts with the capital discipline talk on Energy Transfer's most recent earnings call. But the Sept. 16 announcement is representative of Warren's style: Pick off a smaller operator he thinks is undervalued and whose operations dovetail with his. SemGroup's shares have lost 55% of their value in the last year and 88% over the last five years, and the company owns and operates oil terminals and pipelines connecting shale oil plays to ships and downstream markets.

SemGroup's shares rose from the dead Sept. 16 when the $17/share agreement was announced, gaining 61% to hit $16.50 at the close after frantic trading of more than 36-times the normal daily volume.
Energy Transfer's share also saw furious trading, more than four times the normal volume, but the verdict on Energy Transfer was less clear. Those shares lost nearly 4% to $13.43 by the closing bell.
The pipeline giant has made multiple unsuccessful forays into M&A in recent years. After walking away from the planned purchase of Williams in 2016, Energy Transfer had two unsolicited bids to acquire NuStar Energy LP's general partner rejected in 2018.
Analysts agreed that many in the market were looking for Energy Transfer to announce it has found a buyer for its 33% interest in Appalachian shale gas Rover Pipeline LLC, worth an estimated $2.5 billion. Instead, the company said it would spend more money to buy what it saw as a cheap asset that shored up its position in both Houston and the Gulf Coast through shale oil plays tracking north into Canada. Among other things, 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.
"We do not expect any common equity needs for the foreseeable future," Energy Transfer CFO Thomas Long told analysts on the partnership's Aug. 8 earnings conference call. "We are well-positioned to take advantage of a significant number of accretive growth capital opportunities. We will continue to exercise discipline when it comes to evaluating new projects."
Long's reassurance aside, Energy Transfer is moving on the $5 billion, $17 per share, SemGroup purchase financed with 40% cash and 60% equity while taking on SemGroup's debt.
The mixed message was too much for analysts at energy investment bank Tudor Pickering Holt & Co. "Sizeable acquisition flies in the face of recent messaging," TPH told clients before the opening bell. "No way around it, acquisition this morning represents a sharp reversal from recent messaging on portfolio management, capital discipline and accelerated deleveraging."
TPH said the plan was to spend less capital and pay down debt, which would improve Energy Transfer's metrics and attract more capital. "While acquisition offers potential for Gulf Coast terminal integration, we view the deal as a step back for the ET rerate story."
CreditSights' senior analyst Charles Johnston was more focused on how the deal will rescue SemGroup's bondholders from a possible default after a strategic review was completed. "The acquisition is clearly a home run for [SemGroup] bondholders with 2026s yielding 8.3%," Johnston told his clients. He said that the transaction is expected to barely impact Energy Transfer's credit metrics, bumping up debt-to-EBITDA a notch to 5.0, while adding roughly $450 million in annual EBITDA.
Nonetheless, Energy Transfer will need to simplify its Byzantine partnership structure and unmix its messages to attract more investors, Johnston said. The deal "does introduce additional structural complexity that [Energy Transfer] will need to clean up and investors were hoping for a Rover sale announcement, not an acquisition," he said.
