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Houston crude terminal pushed Energy Transfer to outbid competitors for SemGroup

Energy Transfer LP's bid to buy midstream crude oil operator SemGroup Corp. at a 65% premium beat out proposals from about 10 other suitors that included both public and private energy infrastructure companies, an Oct. 3 SEC filing revealed.

The Form S-4 submitted by the pipeline heavyweight detailed offers from unnamed bidders that ranged from $12 per share to $15 per share, but Energy Transfer's $17 per share offer ultimately won out and was announced Sept. 16. Three of those proposals were from private firms that wanted to take SemGroup private, the document said.

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SemGroup had been considering putting itself up for sale since January when it retained advisers to evaluate transactions including a potential merger with a U.S. gathering and processing company, according to the document.

Energy Transfer made its initial bid in July for $15.56 per share and pursued an aggressive strategy because it particularly wanted to acquire SemGroup's Houston Fuel Oil Terminal on the Houston Ship Channel, which has 18.2 million barrels of crude oil storage capacity and is underpinned by take-or-pay contracts, the document said. Energy Transfer plans to build a new crude oil pipeline, called the Ted Collins pipeline, connecting the terminal to its Nederland, Texas, terminal to expand its footprint in the competitive crude exports market.

The merger, which is scheduled to close late 2019 or early 2020, represents a departure from recent transactions to take public midstream operators private.

A fund managed by Australia's IFM Investors in May agreed to acquire Buckeye Partners LP in an all-cash deal worth $10.3 billion in enterprise value and $6.5 billion in equity value. Blackstone Group Inc.'s infrastructure arm offered in August to buy Tallgrass Energy LP's outstanding units for $19.50 per share, but the proposal has raised corporate governance concerns due to a side letter indicating the $26.25 per share that some members of Tallgrass' management team would receive in the event of a buyout before March 2020, should they choose to divest their interests.

Energy Transfer investors do not seem particularly enthusiastic about the SemGroup acquisition. The pipeline master limited partnership's stock price dropped over 8% since Sept. 15 to settle at $12.87 per unit on Oct. 3.